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Investor wants shares. How does that work?

Investor wants shares. How does that work?

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Hello, I would be very grateful if someone would give me the answer I'm after here.

Have been running a limited company, as sole Director and Shareholder, and doing OK.  It's a niche market, a product, trading in the UK only, with worldwide potential.  A UK investor has offered £100k for a 50% stake in a new limited company to be formed, to concentrate solely on the 'rest of the world', permitting me to continue solely with the current (UK only) company.  Sound like Dragon's Den, I know.  The investor will buy £100k £1 shares (50%).  That £100k is banked and then spent on marketing and systems etc.  The 'investor' will effectively recoup the £100k over 3 years, via dividend distributions of £133k (upon which the investor will become liable to tax at 25%, giving a net of £100k).  The same amount will be distributed to me, as 50% shareholder.  Thereafter, we will continue to take 50:50 each, and might then look at selling the business 6 years or so down the line.  I guess that means sell our shares?

My questions are:

1.   If we are forming a company with a Share Capital of £200k (£100k each), how am I supposed to pay for my shares?  I've been told I need not pay anything, because my input is 'the product' I invented.  Perhaps my £100k contribution should be based on my Goodwill being introduced into the company, i.e. the product?  £100k seems like more than a reasonable valuation to me.  Can shares be paid for in that way?     

2.  To anyone reading this, does any other more tax-efficient route (for either me or the investor) spring to mind as to how the above plan should be transacted?

Replies (8)

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By mrme89
18th Sep 2014 18:36

Considering the sums, do you think it's wise to be seeking advice on an Internet forum?

Thanks (2)
By johngroganjga
18th Sep 2014 18:47

You and your investor will both need proper professional advice (legal perhaps more than accountancy) in order to put this transaction to bed. You might as well start the way you mean to continue by going to get that advice sooner rather than later. Your existing company accountant is probably a good place to start.

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By duncanedwards
18th Sep 2014 21:35

With respect James, aside the completely valid point made by mrme89 and john, accountants have valuable knowledge from which they scrape a living in the same way that you have a valuable invention/product to exploit.  I am sure you won't be giving that product away for free so to be asking questions like (2) does seem to me, well, rather unreasonable.

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Replying to Wanderer:
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By cparker87
19th Sep 2014 00:42

Why?

duncanedwards wrote:

With respect James, aside the completely valid point made by mrme89 and john, accountants have valuable knowledge from which they scrape a living in the same way that you have a valuable invention/product to exploit.  I am sure you won't be giving that product away for free so to be asking questions like (2) does seem to me, well, rather unreasonable.

Whilst you might mention certain things like the investor taking a smaller rate under 30% to exploit EIS it is not as though that constitutes comprehensive advice from which the OP can trot off and implement himself? He and the investor are obviously going to need some advice and assistance in implementation.

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Replying to idasif:
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By duncanedwards
19th Sep 2014 00:55

Why what?
Why what, sorry?

cparker87 wrote:

Whilst you might mention certain things like the investor taking a smaller rate under 30% to exploit EIS it is not as though that constitutes comprehensive advice from which the OP can trot off and implement himself?
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Replying to Cart:
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By cparker87
19th Sep 2014 00:58

Unreasonable

duncanedwards wrote:
Why what, sorry?

cparker87 wrote:

Whilst you might mention certain things like the investor taking a smaller rate under 30% to exploit EIS it is not as though that constitutes comprehensive advice from which the OP can trot off and implement himself?

Why is it unreasonable to ask for other options? An idea is far from comprehensive advice.

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Replying to Wilson Philips:
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By duncanedwards
19th Sep 2014 10:06

For the reasons

cparker87 wrote:
Why is it unreasonable to ask for other options?

For the reasons I set out above.

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By MBK
19th Sep 2014 13:05

To answer your questions ...

.... then:

1: You pay £1 for 100,000 x £0.00001 shares. Investor pays £100k for 100,000 x £0.00001 shares. In other words investor pays a premium. To keep things flexible probably each have a different share class.

2: The investor could take some or all of what would otherwise be his dividend returns up to £100k by way of a cancellation of the share capital in stages . That's a very simple process. No tax payable.

However, the above are only a couple of basic points. Comprehensive advice from a good accountant / lawyer team will be money well spent.

 

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