Company Expansion

**JoJoGabor** · 11 August 2016, 11:11

Unless you get on with them very very well, I think the concensus has been to avoid this. How would you split the shares? What happens if one of you cant find work for 6 months, how do you split the profit then? What if somebody brings a tax investigation, wants to do something dodgy like claiming their kitchen through the company, arguments over pay, profit shares, training, entertainment expenses etc.

**LondonManc** · 11 August 2016, 11:13

I'd treat them as a sub-contractor and get a good contract lawyer to put a six month buyout clause or equivalent in there (similar to what agencies have), so that they cannot direct. They should be grateful enough for the work to not stiff you over anyway; besides, if your market is small, it would be a bad long term move of theirs to do the dirty on you.

**northernladuk** · 11 August 2016, 11:34

There was a question here only last week about a guy that had been screwed over by his partner and was looking fir a lawyer to help him out.

Don't give friends any more leeway than you would a complete stranger. You are gonna fall a lot harder when your friend lets you down.

**Danglekt** · 11 August 2016, 12:41

Personally if I was confident my business was growing I'd employ them, that way they get a bit of security, perks and a good solid reliable salary, and you get continuity and high quality team.

Yes they could leave, but they could as a subby

You bear the risk, but if you dont want to play at it, it's the way to go.

**GillsMan** · 11 August 2016, 13:15

Originally posted by bluetrain View Post

Hi all,

I've been a director (and sole shareholder) of my own limited company for the past year. It's going very well, in fact I'm having to turn down work. I have a former colleague and friend who is unhappy with their current job and wants to come and work with me. We work well together and get on well.

My preferred option would be to make them a director and transfer an agreed proportion of shares. However, that doesn't come without it's own risks (in case it doesn't work out). Employing them as a sub-contractor would be safer, but then there is the risk from my point of view that they could go independent or work for others. I'm not too keen on making them an employee as I don't have to bother with a lot of the PAYE side as it's just myself at the moment.

My accountant can provide technical help, but I was wondering if anyone who has experienced this before can help me decide on the best way.

Thanks!

First of all, congratulations on the success - that's exactly where I was a few years ago, and the person who joined me was a former colleague (actually a permie at a former client). I took that person on as an employee via PAYE.

I definitely completely recommend not taking them on as a director and giving them shares. It might seem an easier way to manage things, but the fact is, it's your company and you've built up the goodwill, so don't split it. You can get good employee contracts from places like Simply Docs (£42 inc VAT), or other sources, and PAYE is not too complicated. I agree with your concerns about taking them on as a subcontractor - anyone who's business-minded enough to run their own LtdCo does present the risk of usurping what you do and taking your clients.

I would absolutely go down the employee route - it's how I started out and I've managed to grow the company quite substantially since then.

**WordIsBond** · 12 August 2016, 06:42

Are you public sector? If so, PAYE employee would be the only way to go.

I'd agree that being an employer isn't that hard, and could be very profitable. There's a risk, though, if you aren't sure you are going to have work for them full time.

It does let you take advantage of the employment allowance. That's not a big deal for your own taxes, a couple hundred a year, but it's a nice chunk out of what you have to pay on theirs.

Not sure why you are concerned about the sub-contractor thing, though. If you are giving them work that you'd be turning down anyway, I don't see the problem. If they end up going direct after six months, well, you took a nice little fee for getting them the work, helped a friend, and now they are off on their own. Meanwhile, your accounts show a big "cost of sales" expense which doesn't look like a PSC to HMRC, so perhaps you lessen the chance of getting investigated for IR35. Just make sure you understand what any of the agency regulations impact you, and take enough of a fee to compensate yourself for any of that.

**Crossroads** · 12 August 2016, 07:07

What do you want to achieve from bringing them onboard? Lots of different answers, but IMHO it boils down to:

1. Will they help grow the business in a way that you couldn't on your own, and in doing so would they be an equal partner in that business and you would jointly be responsible for growing yet further?

or

2. Will you be the driving force, they simply pick up extra work that you win but cannot complete as you have to much on so you give it to them but make a profit out of it yourself?

If the former, then I'd be looking at incorporating a new company in which you are both directors, hold equal shares and start of on the right footing (along with the relevant documentation to set out what happens if it goes wrong).

If the latter, then employ them PAYE or as a subcontractor with the relevant contracts in place.

**Fred Bloggs** · 12 August 2016, 07:28

IMO, best to engage him as a subby with a legally binding non-compete clause in the contract if possible. Well done and good luck.

**VectraMan** · 12 August 2016, 07:56

Originally posted by Fred Bloggs View Post

IMO, best to engage him as a subby with a legally binding non-compete clause in the contract if possible. Well done and good luck.

WHS. PAYE is easy, but there's other responsibilities that go along with being an employer and if it were me I'd say I CBA'd with all that. If you're looking to properly expand and take on more staff, as it sounds like GillsMan has, then it's probably worth getting setup for all that, but for one person I'd go the subby route. Perhaps point him at an umbrella company.

If the guy's unhappy with what he's doing and what you're giving him he's going to leave and do something else anyway.

Company Expansion