Adding Share Class to a Limited Company

[vetran]

I'm not convinced the settlements legislation is an issue here, I'm not even sure giving them a share for nothing would count as a settlement in this case as there's no element of bounty IMO - they aren't getting something for nothing, they are going to be fee earning and bringing in profit for the company. Add to that there is no tax avoidance motivation so I don't think it's something you need to worry about. You're really just taking on a business partner and that to me is a normal commercial transaction which the settlements legislation is not designed to catch.

That said I'm not convinced a messy share structure is the best way to go. A far simpler option would be to pay your partner a good salary for the work they do and look at it as an expansion of your business.

If you eventually get married then you could still give them ordinary share, make them a director and share the profits in your successful (hopefully) business together.

depends if there is a large imbalance and an element of 'bounty'.

If Miss / Mr A contributes £100k and Mr B £10k yet they both draw £42K then its difficult to see why HMRC would see it as fair.

[fabhead]

That's very much how I see it, taking him on as a business partner. And yes he'll get a salary. Doesnt seem that different to ither small business with father and son employees etc to me but I wanted to explore the options.

If I keep the structure as is only I can take dividends. If he gets a share and can take dividends too would it be more efficient for him to take dividends as well or for me to take more dividends and pay more tax and keep him as low rate tax payer with salary only (as someone has to take more dividends somewhere to replace his permanent salary). We will never get married but are co habiting and have joint mortgage etc and have done for many years so what I put in place now can be the final solution.

[TheCyclingProgrammer]

Make them company secretary.

Either or - if they are running the business together, company director might also make sense. Whatever makes the most commercial sense.

[TheCyclingProgrammer]

depends if there is a large imbalance and an element of 'bounty'.

If Miss / Mr A contributes £100k and Mr B £10k yet they both draw £42K then its difficult to see why HMRC would see it as fair.

Perhaps, OTOH if you have two different classes of ordinary share and are dishing out dividends in a similar proportion to each person's input into the business then I can't see how HMRC could see this as unreasonable Even though its often advised against using alphabet shares, this seems like a valid case for them.

[TheCyclingProgrammer]

If I keep the structure as is only I can take dividends. If he gets a share and can take dividends too would it be more efficient for him to take dividends as well or for me to take more dividends and pay more tax and keep him as low rate tax payer with salary only (as someone has to take more dividends somewhere to replace his permanent salary). We will never get married but are co habiting and have joint mortgage etc and have done for many years so what I put in place now can be the final solution.

My view is that if this is a genuine commercial arrangement - and if he's earning a reasonable amount of profit for the company it probably is - then a setup where you both have ordinary shares, possibly of different classes to enable you to pay out dividends separately on each class, might be OK. OTOH if you have a good idea of how much they will be contributing you could stick with one class of ordinary share but split the shares accordingly - it doesn't have to be 50/50.

Most importantly you need to make sure you talk to an accountant and its dealt with properly - any transfer of share, regardless of consideration, needs to be assessed for CGT, which would require a valuation to be made to determine if there is any liability (there's a good chance any gain is within the CGT allowance).

[fabhead]

thanks all for your contributions - really helpful. I would expect contributions to be roughly the same i.e he will almost double turnover. I think I will stop being stingy and trying to do myself and, as you say, get my accountant to do it so that it is assessed properly. Sounds like an uneven split of ordinary shares or adding a letter class of ordinary for him might be the way to go, but I'll let the accountant sort it out I think. I think my accountant was suggesting the different class of share to cover any periods when one of us wasn't working?

Thanks for the advice, much appreciated. Any further thoughts on what makes most sense commercially welcome.