Keep your share structure tight. It can pay dividends in many ways.
Date:
28 September 2018
That's all fine in theory but may not work so well in practice: if a company has a complex share structure, or has multiple minority shareholders:
a) it can be off-putting to investors;
b) if not documented properly it can cause problems with control of the company and also jeopardise a trade sale if the minority shareholders can’t be ‘dragged’ (obliged to sell when the majority shareholder wants to sell);
c) it can result in a whole host of people expecting (probably wrongly) to have a say in the running of the company, which can be an unwelcome distraction; and
d) if not implemented properly, it may cause unintended and expensive tax consequences for the company and/or its shareholders.
If you think having multiple shareholders is unavoidable:
- file the correct paperwork with Companies House and write up the company’s statutory books (admittedly not an exciting task);
- amend the company’s articles so that you don’t jeopardise control or end up having a trade sale blocked by a minority shareholder; and
- consider granting share options instead. These can be subject to performance targets so that if the option-holder doesn’t perform, or leaves, the options lapse and the company keeps its shares. It may well be possible to grant tax-efficient 'EMI Options'.
If you’d like to discuss how we can help to keep your company structure clean and workable please get in touch.
