Splitting Dividends between Directors

[UTCIAD]

Hi all

I am joint director of a business that has been going for a few years. Myself and another director hold 250 ordinary shares each. We are both also full-time employees of the company. Up until now we have split profits 50:50 and taken equal dividends.

however, for the last 3 years (out of 5 we have been around) I have been the main revenue generator for the company. Currently it is about 60:40 in my favour and it shows no sign of changing. Each year I effectively subsidise the other director by around 50K. We have talked about issuing Class A and Class B shares so we can take unequal dividends.

The problem is we don't know how to work out exactly what each is due.
Income comes from:
1) Work each of us does directly (we work on different projects)
2) Income from work done by our 2 staff.

I arrange all of No. 2 and do more of No. 1 so I feel I should be getting a bit more out. Does anyone know of a 'formula' that could be used and put in a Shareholders' Agreement to allocate dividends fairly?

We both agree we need to sort it out but haven't got a clue how. All help is appreciated.

Many Thanks
Paul.

[malvolio]

Hi all

I am joint director of a business that has been going for a few years. Myself and another director hold 250 ordinary shares each. We are both also full-time employees of the company. Up until now we have split profits 50:50 and taken equal dividends.

however, for the last 3 years (out of 5 we have been around) I have been the main revenue generator for the company. Currently it is about 60:40 in my favour and it shows no sign of changing. Each year I effectively subsidise the other director by around 50K. We have talked about issuing Class A and Class B shares so we can take unequal dividends.

The problem is we don't know how to work out exactly what each is due.
Income comes from:
1) Work each of us does directly (we work on different projects)
2) Income from work done by our 2 staff.

I arrange all of No. 2 and do more of No. 1 so I feel I should be getting a bit more out. Does anyone know of a 'formula' that could be used and put in a Shareholders' Agreement to allocate dividends fairly?

We both agree we need to sort it out but haven't got a clue how. All help is appreciated.

Many Thanks
Paul.

Why not get your partner director to gift some of his shares back to the comany so the net shareholding is split in line with earnings. No charges or fees or tax implications, simply fill in the right form from Companies House. That has the advantage that if No 2 starts bringing in equal money you can increase his shareholding to level things out again.

It needs to be 250 shares to you and 165 to him, so he needs to return 85 shares to get the 60/40 split

[UTCIAD]

It needs to be 250 shares to you and 165 to him, so he needs to return 85 shares to get the 60/40 split

thanks for the reply but the problem is how do we decide if it is truly 60:40? On earnings it is quite simple. We just tally up the respective project invoices for the work we do. But is becomes more complicated when it invovles profit on work we give to staff or sub-contract. Are these split 50:50 as a compay profit? Or because I won the contract, sorted out the staff etc do I count it as 'mine'? Finally, we hope the day will come where neither of us actually earns the money, but the company does (through staff etc). How would we split it then?

Also, what if both invoices totals are the same but it took one of us twice as many hours to do it (our contracts are not time based)?

so many variables...

[THEPUMA]

Why not get your partner director to gift some of his shares back to the comany so the net shareholding is split in line with earnings. No charges or fees or tax implications, simply fill in the right form from Companies House. That has the advantage that if No 2 starts bringing in equal money you can increase his shareholding to level things out again.

It needs to be 250 shares to you and 165 to him, so he needs to return 85 shares to get the 60/40 split

I don't think that answers the query raised but even if it did, it is nowhere near as simple as you suggest. Most decent solicitors will charge a minimum of £1,500 + VAT to prepare the associated paperwork for a share buy back and that's before you get anywhere near your accountant.

Paul, if you want to PM me your contact details, I'd be happy to call you to discuss.

[malvolio]

I bow to your superior knowledge - but I moved my wife's shareholding back to mine FOC exactly as described.... Perhaps I missed something

[THEPUMA]

I bow to your superior knowledge - but I moved my wife's shareholding back to mine FOC exactly as described.... Perhaps I missed something

I suspect you did.

Unless you used a stock transfer form to transfer her shares to you but that is not what we're talking about here.

[malvolio]

I suspect you did.

Unless you used a stock transfer form to transfer her shares to you but that is not what we're talking about here.

Could well be. Ho hum...

[Archangel]

I don't think that answers the query raised but even if it did, it is nowhere near as simple as you suggest. Most decent solicitors will charge a minimum of £1,500 + VAT to prepare the associated paperwork for a share buy back and that's before you get anywhere near your accountant.

Paul, if you want to PM me your contact details, I'd be happy to call you to discuss.

With a turnover of £500,000 they can afford it!

[sidknows]

turnover does not equal profit -- just ask the majority of umbrella companies!!

[UTCIAD]

Mr THEPUMA

I would PM you but as a new user I don't seem to have the ability. I am unworthy! Is there an alternative?

Ta