Shareholders and shareholder agreement

" working shareholder "

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Hello lovely people. 

I had some wierd enquiries theses days and wanted to get some experts' point of view. 

I am an accountant and some clients came to ask me to create a partnership agreement between shareholders to set up rules and obligation between the two shareholders ( according to what an accountant advised them...) 

some of them employ the term working shares and what they imply by that is that 2 shareholders will split the share capital 30%, 70% but the 30% shareholder have to work in the company and become the manager and get a salary on top. 

how I usually set it up in my mind is that there will be for ex £100 share split between them, then any money coming to the company will be DLA to not dilute the shares but some of them want to have quiet hefty amounts as a share capital and in that case it is treated as giving 30% shares to the other person which implicate CGT and SDRT right ? 

finally a shareholder agreement can determine the roles and responsibility of the directors and shareholder so why the accountant advised to have a partnership agreement am I missing something ? 

 

 

 

Replies (12)

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RLI
By lionofludesch
16th Feb 2024 20:12

I don't understand this.

Is one fella putting all the money in but the other fella is treated as having put 30% in?

What's this comment about some of them will want to have quite hefty amounts as share capital? Some of two people?

Not to mention that this is clearly a legal question. Though, of course, you can draft the numbers for a lawyer to include in the agreement.

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Replying to lionofludesch:
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By T B
16th Feb 2024 20:58

Lionofludesch, sorry for not being more clear. But yep one puts the money the other is treated as having 30% of that, whatever the share capital is. So that’s why I am confused and want to know if it exists in our world how does it work but happy to know that you’re as confused as me.
Also the part about the partnership agreement and not the shareholders agreements that will specify that shareholder (30%) will have x roles and x responsibilities..

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Replying to lionofludesch:
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By David Ex
16th Feb 2024 21:24

lionofludesch wrote:

I don't understand this.

+1

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By T B
16th Feb 2024 21:32

Happy to hear that haha.
I don’t think it makes sense so let’s just leave it at that.

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By DKB-Sheffield
16th Feb 2024 22:34

Hmmm

I wonder why the other accountant advised... then seemingly disengaged?!

Second thoughts... I think the detail in the OP answers that question... or maybe it creates a whole host of other questions?!

I'd usually suggest this is a legal matter but, I'm really not sure. Maybe it is, maybe it isn't. I'm just glad it ain't my matter.

Good luck - whatever you decide!

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By Tax Dragon
16th Feb 2024 22:52

If there's two people how many is "some of them"?

Don't forget ERS.

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Replying to Tax Dragon:
RLI
By lionofludesch
16th Feb 2024 23:06

Tax Dragon wrote:

If there's two people how many is "some of them"?

Quite.

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Replying to lionofludesch:
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By Tax Dragon
17th Feb 2024 04:44

Sorry lion - I missed you'd already asked that.

I now wonder whether OP has some documents adopted by other companies/shareholders/partnerships and "some of" refers to the documents. If so, maybe OP needs reminding about what work an accountant can legally do and not do.

Fortunately the solution is simple: point the clients in the direction of their solicitor/lawyer.

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Replying to Tax Dragon:
RLI
By lionofludesch
17th Feb 2024 11:53

No need to apologise.

Drafting the agreement is the work of a lawyer but there is some work to be done by an accountant in putting together some numbers. Whether the parties will be happy with the outcome is anyone's guess.

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RLI
By lionofludesch
16th Feb 2024 23:51

Your problems are

1. You don't know the profits

2. Your clients may well have different expectations of those profits. To each other, and to you.

3. One partner is probably going to get a salary and a dividend, the other just a dividend.

4. Dividends are taxed differently to salaries.

5. There's the question of how the working shareholder will get his shares.

6. We don't have any numbers but maybe the financing director needs to introduce more money. If so, how? If a loan, is that really the level of commitment expected?

Solve all that and, by the time you've finished, I'll probably have another half dozen problems.

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Replying to lionofludesch:
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By T B
17th Feb 2024 13:56

Hope this time my response will go through.
I have responded to this twice but an error is showing.
Anyways.
Just to answer the question, it is always two shareholders
The tax implication I will take care of that.
It is not always the work of a solicitor from the beginning, we sometime lay the ground for the solicitor to have a better understanding.
I wanted to know if this has been a practice done in the UK ( bearing in mind that I used to practice in another country and now established in the UK) or is it just an issue that need to be addressed by educating clients.

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Replying to lionofludesch:
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By T B
17th Feb 2024 14:00

Lionofludesch sorry I forgot to thank you for the breakdown of the issues at the end of my previous response.

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