Paid Contract to Part Ownership ... would agent object?

[nfoote]

Quick question.

Been working for a internet startup as a paid contractor. Investors are running out of money so are cutting all contractors, which is ALL development staff. So to keep the business going, which we all believe in, all contractors have turned around and said;

A) We all will need to find other full time contracts to pay for our normal lives
B) In our spare time / weekends we'll finish the current part of development we committed to getting released (which overran as IT projects are want to do). This will be free of charge as a gesture of goodwill.
C) Once that part of development is deployed we want to continue on developing the product (as like I said, we all believe its a great idea), again in our spare time and weekends. This would be for a share of the company!

Client is really really pleased with this arrangement and is excited to begin discussing part C (obviously he likes part B anyway).

Does anyone see my recruitment company having an issue with parts B or C given that there's the standard clause of "thou shalt not work for thine client for 6 months without involving us'th".

Given we're going to charge £0/hr for part B I don't see what they could do about that but I'm concerned about part C!
Although also given I was being paid £300/day by the recruiter while the client was apparently being charged "over £400/day" for my services I'm inclined to (un)politely tell the recruiter he's made his far share off my back for one lifetime.

[SueEllen]

Are you opted-in or opted-out? If you are opted-in the 6 month clause doesn't apply. (If you don't know what I mean then do a search on here and on google for "The conduct of employment agencies and employment business regulations 2003")

Secondly if there is no money then there is nothing for the agency to chase so whether they give consent or not doesn't matter. However in theory if the idea works and you all make money there is nothing stopping the agency chasing the relevant parties for money down the line.

[northernladuk]

I would be VERY careful of option C. By doing this you are entering in to a partnership which needs detailing very carefully and a very tight contract/agreement.

The negotiations, I would expect, be pretty tough with him trying to screw you long term and, unless you have a good business head on you, he will probably get away with. I would expect he will also try and make you partly responsible for everything, including risks and possibly dept. You will need a lawyer involved to do it properly.

If you want to do it on a gentlemens agreement it is highly likely to go completely Pete Tong when either you don't deliver because you CBA and there is no commitment/contract for you to do so, or when the money starts rolling in and he just cuts you out with the statement 'show me the agreement'.

Flipside is what if you do all this work and he CBA to market it and run it properly you are going to be well hacked off.

You then have all the infighting about some guys not doing the same amount of work as the others, some leaving yadda yadda...

Sounds like it could be a recipe for disaster if done wrong.

[Wanderer]

Does anyone see my recruitment company having an issue with parts B or C given that there's the standard clause of "thou shalt not work for thine client for 6 months without involving us'th".

Definitely, they will be asking for a payoff. The question of them getting one or not is another story. Did you (and all the other contractors for that matter) opt out or not? This is really important. As part of due diligence, you should be examining the client's contract with the agency to see what the impact is.

As Northernladuk says, this is obviously a high risk venture so you want to make sure the rewards are suitably high and your legal rights are protected too. Get some proper legal advice regarding the share structure and management of the company, don't get burned. What if the board votes massive bonuses for the director and leaves nothing for dividends to distribute to the shareholders? How many shares in the company will the contractors hold? Enough (jointly or individually) to influence company policy at board meetings or will you be minority shareholders with no say?

[Hex]

I'm not so sure there is an agency problem at all. The agency restriction will be with your limited company. Your arrangement to do work for nothing and later to get a share of the company will be with you personally - not through your limited company. I don't see that the agency has any stake in this and I don't see they can claim anything. It might not stop them trying though. You'd best double check your contract.

As NLUK says, you need to get the contract set out very clearly. Don't do one of these "Come and work for us and we'll give you about 2%" verbal agreements. I have done 1 of these and a friend of mine has done 2. In both cases, by the time they got round to doing the paperwork, the shares we got were greatly reduced. You need your share in writing up front.

[SueEllen]

I'm not so sure there is an agency problem at all. The agency restriction will be with your limited company. Your arrangement to do work for nothing and later to get a share of the company will be with you personally - not through your limited company. I don't see that the agency has any stake in this and I don't see they can claim anything. It might not stop them trying though. You'd best double check your contract.

Depends on the wording of the restriction clause.

Some agencies are intelligent enough if you are opted-out to have a clause that is valid only for 6 months and states that the directors and company employees are prevented from working for the exact named client not all their many subsidiaries etc. This means you went to court the clause would more likely be enforced as it's not wide.

In regards to the venture nfoote needs to get a contract sorted out that sorts out who owns the intellectual property (the work) you produce. As it's quite easy for the company's director to screw you in many ways. If the company doesn't own yours or the others work until you have been paid x amount in full separately from the shares you hold then he would be less inclined to screw around with you. If the owner isn't willing to do this even if the amount is much less then the market value of the software then walk.

[Taxless]

Wholly endorse the previous health wanings. I have just had a client who had a vebal agreement for a nice slice of a company.

He spent ages turning it round for little money as he saw his reward in the share value. As soon as things were in place and the share value started to rise, they dropped him like a hot potato and he got a token payment on the way out the door.

It would also make sense to get the shares into your hands early while the value is low. If the shares transfer when their value has risen, you are probably caught by the Employment Related Securities legislation asyou gte the shares by reason of your employment in the company. This means you would suffer PAYE/NIC on the value of the shares at time of obtaining them, although if structured propely, the company will get a Corporation Tax deduction on the value.

So, work hard for no cash, get shares and get hammered for tax. It's an unjust world.