Hi. I have just been employed by a new client who runs a company which provides specialist driver training. My client has informed me that in order to set up his company he has asked two people who drive for him to inject some cash. There are three shareholders in the company. My client who owns 52% and the two drivers who own 24% each. It is not his intention however to share any profits with the other shareholders and apparently this has been made clear to them. In return for their cash injection he is providing them with work on a weekly basis. I am unsure as to how to show the payments to the two drivers - initially I was presuming they would invoice the company but am now wondering how to deal with the fact that they are shareholders and am thinking that maybe any payments to them should be classed as dividends. Any thoughts would be appreciated.
If the intention was to obtain loans from the drivers then it should have been structured as such - unfortunately as he has offered shareholding in return then the two minority shareholders are entitled to their share proportion of all distributed dividends. They are also entitled to their proportion of the profits if the business was ever sold. Any dividends distributed to hismelf only are illegal unless the other shareholders waived their right.
It seems as though your client did not seek / was not properly advised on the implications when he transferred the shares. Iw ould advise him to buy back the shares immediately and get the cash paid back in to the business by way of loans.
Hope this helps.
-- Edited by Jason Dormer on Tuesday 23rd of March 2010 03:31:00 PM
-- Edited by Jason Dormer on Tuesday 23rd of March 2010 03:31:27 PM
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.....Unless of course they were issued with a different class of share, e.g an 'A' share not an ordinary share. Then the major shareholder may only issue a distribution of profits to the ordinary shares to which he presumably has 100%??
Anyhow, if they are employed by the company I would assume they would be paid via PAYE, just like the many BT shareholders who work for BT are.
Thankyou for your comments - they were very useful. I will go back to my client and ask him re the class of shares. If he has issued ordinary shares then I will advise him to purchase them back as suggested. Regards
