Reply to: Dividing the risks between director and shareholder?

[NotAllThere]

Looks like we'll never know. Another one post wonder sadly.

TBH, it was on the cards from the start.

[l35kee]

Hi,

I’m planning to open an LTD company. An old mentor of mine, who is very experienced, wants to have 100% shares of the company initially. It means he wants to make all the decisions in the first year. Then his share will go down 10% each year (transferring to me) until it reaches 50% in the 5th year. The reason for this dominance is that he is very experienced while I’m not and he wants to show me the way a company should work.

This mentor is not your friend. In fact I am assuming he actually doesn't like you at all, and is taking advantage of you totally and completely.

There is no risk to him. He cannot lose his shares. He cannot lose his money. He only stands to gain, while you aren't even standing.

Get away from him.

[zonkkk]

Looks like we'll never know. Another one post wonder sadly.

Unless his mentor changes his mind, and decides to let him come back on the forum.

[northernladuk]

Looks like we'll never know. Another one post wonder sadly.

[WordIsBond]

Don't understand this one at all.

I think you ought to put this disclaimer at the start of every post you make... Or maybe in your sig so the reader can asses the quality of your post

Ahem. I don't understand what the OP is on about either, and I hope you don't, either. Because based on what he said I'll be amazed if anyone understands....

[northernladyuk]

I think

That would be a first.

[northernladuk]

Don't understand this one at all.

I think you ought to put this disclaimer at the start of every post you make... Or maybe in your sig so the reader can asses the quality of your post

[simes]

Don't understand this one at all.

What is the purpose of the LtdCo if not for contracting? Are you selling a product or some other sort of service based on multiple clients whereby he is, or has to be the face of the company?

Otherwise, if you're contracting, your accountant will show you how to run the company. And hopefully, s/he won't run away. Or die!

[LondonManc]

Hi,

I’m planning to open an LTD company. An old mentor of mine, who is very experienced, wants to have 100% shares of the company initially. It means he wants to make all the decisions in the first year. Then his share will go down 10% each year (transferring to me) until it reaches 50% in the 5th year. The reason for this dominance is that he is very experienced while I’m not and he wants to show me the way a company should work.

I will then receive a fixed salary monthly. My salary comes from my mentor’s account: he will pay for me by his own money.

My thinking: what if after some months my mentor sees no future in the company and decides to run away, how do I survive? Should I ask him to deposit a 6-month or 1-year amount of my salary into the company’s account, then I’ll withdrawn from it every month?

In that case, I’ll be on a very safe side: receiving monthly salary for sure although I may not find any contract. And my mentors runs the risk of losing all shares if I screw up.

In short, my mentor has money and skills but he’s very old. I have the ability to execute but no money. I also have a family to take care of.

My mentor is also very persistent in having a lot of power over the company.

What should be the optimum option to divide the risks in my case?

Thanks a lot !

What do you need the mentor for? What's his role (other than shafting you)?

[webberg]

This is highly unusual and in terms of risk and reward makes no sense.

You would be better off just taking a loan from your mentor and running your own company.

[Maslins]

Sounds like, you are not starting a company, but your 'mentor' is and you are merely an employee.

^^this.

[Lance]

It sounds on the face of it like an awful idea.
Plenty of opinions on why it's not good.

So here's the only reasons I could see it working and what is needed.

* The mentor is putting in significant cash to start the company
* It's NOT an IT contracting company where the OP is the only worker
* The OP has no money at all for investment
* The initial wage is at least as good as the OP could get as an employee
* the share switch over is in a legal contract (which will cost a few thousand pounds)
* the share switch over is set to dates/targets that both parties agree to
* the mentor cannot just dilute the shares (IE. there must be a limit on issuing new shares)
* the mentor cannot just sell the shares without
* there must be some provision for death of either party
* exit clauses for both parties must be agreed (it may well just not work out and nobody wants to be left in the sh1te)

[cojak]

And who will take care of the taxes and regulations? Your mentor?

It will be you who runs the risk of HMRC knocking on your door if the mentor 'runs away' as you put it.

[northernladuk]

I think we need more details as I have a feeling this is completely different to what we do so our experience is worthless. This sounds very much like a father son business with a gradual transfer over to the son as he learns the ropes.

So. Questions to the OP.

How old are you?
What is the business you will be carrying out? Retail, importing. I guess it's not IT contracting.
What experience do you have in this area of business? Running a LTD is easy, running a proper business isn't.

If the OP can give us some details about the situation beyond his question I am sure all will become clear.

[ContractorScum]

This sounds like a terrible idea. I dont understand why he would demand 100% only to release ownership cos he wants to show you 'the way a company should work'. I assume you will be doing all the work and he will be running the company.

What happens if the relationship goes sour? or even worse for you if the company gets bought for £10m or whatever. Do you really think he will give you some money?

I would suggest a 40/60 to him, so he does have majority control but you have a stake and he can still 'show you the way a company should work' If he says no to this then run cos something doesn't smell right here.