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bigduckontax
bigduckontax, Accountant
Category: Tax
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Three people who work together are about to 'go it alone' in

Customer Question

Three people who work together are about to 'go it alone' in the same line of work that we have been in for over 20 years. We have one supplier and one ex-commercial landlord who are both very interested in becoming part of this new business (very encouraging!) Although we are still debating whether to approach banks as well. Anyhow...
We need to choose a legal structure for our new venture and we think that a limited company, limited by shares, would be the way to go.
The question is...how do we set that up...how many shares should we issue...should we leave some shares within the company for future use?
We initially wanted a 33.3% equal split of the company, but these two potential investors will 'probably' want a slice of the pie.
I need some help here!!
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.

Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.

You can buy a new off the shelf company for a very modest amount from a number of reputable sources. Here is the Gov UK's advice on how it can be done:

https://www.gov.uk/limited-company-formation/register-your-company

There are, of course commercial outlets for this also. SDJ Accountancy has some advice on why or why not to use a limited company to operate your new enterprise:

https://www.gov.uk/limited-company-formation/register-your-company

These new companies usually have a share base of say 100 or 1000 one pound shares and on formation will allocate these as appropriate. I feel that it is always a good idea to leave some shares spare after the initial allocation. I know of at least one company with only two one quid shares in issue. A private company these days needs only one director and a company secretary is not required. I always feel it safer to operate through a private company as it places barriers between the company's activities and the individual, they both, in law, being separate legal entities.

I do hope that I have been of assistance, don't hesitate to come back to me if you need some more advice using the same thread as a follow up question. Amongst other things I am a Chartered Secretary.

Customer: replied 1 year ago.

Hi Keith,

To be honest, I don't understand your answer. 'Buy an off the shelf company'?

We have a name, we have an idea, we have our suppliers, we have our customers, we have our premises, we have our experience and knowledge, we have two potential investors. We need advice on how best to set up a limited company with say 100 shares and how to allocate these shares.

One investor is a supplier for the company that we currently work for. He will put in up to £100K for a slice of the pie and in return give us better terms on stock by way of price, speed of manufacture and delivery and extra time to pay. He may supply stock up to the value of £100K in stead.

The other potential investor is our ex landlord. He has expressed a willingness to cough up the full £300K in return for a cut of the business. In return, we get a 4000 sq ft unit with no rent, just rates and some sundry equipment such as office furniture. He will also look at providing some working capital for the first few months.

Both these guys will still do business with us even if we say no to investment and go down the 'bank' route for finance and they will do us good deals.

Should we say yes to them? and if so, how much of our company should we offer them and on what terms? Neither want to have a say in the day-to-day running, but can we set it up so that they are not part of any decision making?

They are both experienced entrepreneurs, whereas we three have never set up a company before....there's a chasm of difference in our level of knowledge here and I for one, feel a bit out of my depth at the moment.

Any advice Keith?

Expert:  bigduckontax replied 1 year ago.

Off the shelf companies are ready made companies you can buy from a number of sources all ready to operate. They usually come with full instructions, company registers and everything you need to start. Here is an example, I have no knowledge of this particular organisation:

http://www.formationsdirect.com/offtheshelfcompanies

Many of these company formation bureaux allow you to select your own name. If I recall changing a company name costs about 50 quid so having your selected name from the beginning can be advantageous.

I would suggest that you form a company setting up with a few shares each and let your experienced entrepreneurs assist by making loans to the company instead of putting these large sums into capital. You do not wish to loose control of your enterprise by letting them have the lion's share of the new organisation by issuing them too many shares. By appointing yourselves directors you can manage the day to day operations of the company and retain control.

You may need the advice of a trusted, local professional in this matter until you have got on your feet so to speak.

Customer: replied 1 year ago.

Hi Keith,

Thanks for your answers so far, but can I ask you for your gut feeling about which one of the following is best?...I won't consider it 'advice' just an opinion using your experience:

1. We say no to these chaps money and just get the best deal we can out of them, but get the finance from a bank.

2. We offer them say 5% of the company in return for a loan to the company which will ease any initial cashflow issues.

3. We offer them none of the company, just interest on their loan to the company

4. We spread the financing between them and a bank, say 100K each and offer them say 12.5% of the business

5. None of the above

Many thanks Keith....It's got to be time for bed soon!

Expert:  bigduckontax replied 1 year ago.

1. Well this always the safer way to retain control, providibg, of course, you can persuade your bank to play ball.

2. I suggest that an admirable way forward.

3. Perfectly acceptable also.

4. Another acceptable solution.

5. Personally I would endorse method 1 followed by 2 or 3 with 4 as an also ran.

Actually no, I am just going down for breakfast, I am answering your question from a country in a time zone 7 hours ahead of GMT!

Please be so kind as to rate me before you leave the Just Answer site.

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3119
Experience: FCCA FCMA CGMA ACIS
bigduckontax and other Tax Specialists are ready to help you
Customer: replied 1 year ago.

Thank you Keith...it's been good talking to you...enjoy your breakfast.

Expert:  bigduckontax replied 1 year ago.

Delighted to have been of assistance.

Thank you for your support.

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