Currently advising a successful profitable business who are going through an MBO as part of the long term owners succession plan.
There will be 4 shareholders of the business going forward, of which only one is an existing director and the other 3 are longer term members of the senior management team.
As the business will continue to be profitable post transaction, they are intending on immediately changing how the 3 longer term members are remunerated and their blend - i.e. moving from high salaries + quarterly bonuses to lower salaries and higher dividends.
Is this likely to be seen as reasonable and a fair consequence of the transaction/those individuals becoming shareholders, or will the notable drop in PAYE salary attract unwanted attention?
Replies (4)
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Not sure there is really any issue beyond having to work within the strictures of the number of shares of each class that each will own when declaring dividends,
Are the others also becoming directors?
Yes
seen by whom?
It may cause difficulties for the shareholders/directors if they are seeking a new mortgage in the next few years.
As we have seen with CJRS, those taking dividends rather than salary were left in the cold.
Whilst you hope it never goes there, entitlements to statutory redundancy pay are based on salary only. Ditto if there is death in service cover.