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Enterprise Investment Scheme - Is it better to have the inventor of the project as a director or is it OK to be just a shreholder......

My clent has basically given the idea to a Ltd Company (ownership and royalty rights) in exchange for shares. The company is now in the process of attracting investors.

The investment company that has been putting the whole deal together has insisted that he must become a director of the company but my client has insisted that he does not want to. This finance company is insiting that without him as director then the whole investment is in jeopardy.

My client feels that he is being bullied into something he does not want to do. He does have a major shareholding in the company and he is of the opinion that this should be enough for the investors concerned and sees no extra benefit to him being a director.

He has comitted himself to working for 2.5 days per week for the company until the project is ready for market.

Which one of these people is right? Does he need to be a director or can he be what he wants - a consultant with a comitment of 2.5 days per week.
Peter Watkin


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By Anonymous
24th Apr 2006 16:50

Thanks for your comments. My client is still of the opinion that he does not wish to be a director BUT is very happy to enter into any agreement the company wants to tie him to to see the project through. He's also happy, and has done, to go and see any potential investors at anytime. As it is he is commited to 3 days per week.

There are reasons for him wishing not to be a director and we are trying to find a way around it that would suit everybody.

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29th Mar 2006 14:31

Would You Invest In A Start Up Where The Brains Was Not Tied In?
Working in an EIS company which is about to complete its third and final round of funding under EIS, the institutional investors would require the person behind the idea to be committed to the company as both a shareholder and a director. They would need to see that the person/people responsible for the core idea of the business are there and then supported by other directors with the expertise to bring the idea to fruition. Would any other investor also feel comfortable with that? I'd doubt it.

Having done the road shows and beauty parades in front of the VCTs and investment houses, there is no doubt in my mind that the two directors responsible for starting the company had to be at the meetings. Also, their commitment to the company was covered in the meetings by questions.

I don't think it unreasonable to have the brains behind the idea actually behind the company trying to realise that idea.

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