Employee to Director

[dan_87]

I currently work for a small consultancy, who have asked me to become a Director.

Quite an open ended question, but I wonder if the PH collective can outline the pro's/con's of becoming a director, particularly in respect of PAYE/Divi payments, Student Loans repayments, Pension Contributions and any other tax efficiencies.

Thanks,

D

[dibblecorse]

Is it a Directorship as in equity partner Director which may require you to 'buy in' or is it a Director job title ?

[Terminator X]

If there is a major shareholder you will have to do what they say; can sometimes cause problems if said person is um "highly strung". If the company makes low or zero profit you won't get "paid".

TX.

[dan_87]

dibblecorse said:

Is it a Directorship as in equity partner Director which may require you to 'buy in' or is it a Director job title ?

equity partner Director i believe

[dan_87]

Terminator X said:

If there is a major shareholder you will have to do what they say; can sometimes cause problems if said person is um "highly strung". If the company makes low or zero profit you won't get "paid".

TX.

This is somewhat the case, however the firm (as best as I can tell) is consistently profitable.

[Europa1]

Terminator X said:

If the company makes low or zero profit you won't get "paid".

TX.

That's a rather sweeping statement.

[dibblecorse]

dan_87 said:

This is somewhat the case, however the firm (as best as I can tell) is consistently profitable.

As best as you can tell ?

On that basis you need to do a shedload of due diligence and get a copy of the agreement they will want you to be party to outlining your liabilities as well as your benefits as a Director.

[dan_87]

dibblecorse said:

As best as you can tell ?

On that basis you need to do a shedload of due diligence and get a copy of the agreement they will want you to be party to outlining your liabilities as well as your benefits as a Director.

Of course, that goes without saying. Its more the fundamentals of the change that I am unsure of.

[RC1807]

dan_87 said:

equity partner Director i believe

Find that most important part out first, eh.

A colleague's husband was made a partner at Deloitte. He had a couple of 'skint' years as it was his buy-in period, not having worked his way up through the ranks there.
Now, though .... KER-CHING!

[bristolbaron]

dan_87 said:

I currently work for a small consultancy, who have asked me to become a Director.

Quite an open ended question, but I wonder if the PH collective can outline the pro's/con's of becoming a director, particularly in respect of PAYE/Divi payments, Student Loans repayments, Pension Contributions and any other tax efficiencies.

Thanks,

D

dan_87 said:

Of course, that goes without saying. Its more the fundamentals of the change that I am unsure of.

There’s nowhere near enough info to be able to answer your original questions. What share you’re given/buy, whether you’d receive a salary/what that would be, whether your salary would be in addition to/supplement dividends, whether pension payments would come out of your part of the pot or be part of your % etc would all be for you/them to negotiate. Once all of that’s happened, your accountant will be able to advise most efficient way of receiving income.

[Terminator X]

Europa1 said:

Terminator X said:

If the company makes low or zero profit you won't get "paid".

TX.

That's a rather sweeping statement.

Do tell, might help the OP

TX.

[StevieBee]

As a Director, you will have joint and several responsibility for ensuring that the company is properly run and adheres to all legislative requirement in terms of tax, employment laws, company filing and so on.

As a Director, you may be entitled to a share of the profits. You may also be liable for a share of the debts. You should seek clarity on your voting rights because if the others at some point in the future agree to obtaining a £1m loan and you have a 10% stake, that means you are liable for £100k of that loan which you may not wish to have hanging over you but will have little say in the matter.

You must also ask why they are offering this to you. Why not just a pay rise? I can probably give you the answer.....it's to tie you to the company. As an employee, you can up-sticks any time you like. As a Director, it's not quite as clear cut, particularly if you have liabilities that the others do not wish to absorb.

If this is a company that you can see your long term future with and all's rosey, then keep your eyes open but go for it. If not, tread very carefully.

[MECHENG84]

Being a director can make re-mortgaging or obtaining a mortgage much more difficult over being an employee.

[Europa1]

Terminator X said:

Do tell, might help the OP

TX.

Because most directors do get paid a salary, regardless of business performance. There may of course be performance-related bonus elements on top of salary.

if however, OP is being offered equity partnership, that is a different kettle of fish.

[Sheepshanks]

dan_87 said:

ts more the fundamentals of the change that I am unsure of.

If it's a limited company then nothing much needs to change - you'll still be an employee and you can still be paid and taxed in just the same way. Or you could be switched to being paid a small salary with the rest of your income as dividends, but that isn't the big advantage it once was.

[Countdown]

dan_87 said:

dibblecorse said:

Is it a Directorship as in equity partner Director which may require you to 'buy in' or is it a Director job title ?

equity partner Director i believe

I stand to be corrected but "Equity Partner" and "Director" are two separate things. Whilst you may well be "both" it is not automatic.

Equity Partner = Owner/Shareholder

"Proper" Director = somebody appointed by the shareholders to run the company. This carries formal responsibilities and you're listed as a Director at Companies House.

"Not a proper" Director - basically a job title. No formal responsibilities, not registered at CH.

You can be an Employee and a Director at the same time. You cannot be an Employee and an equity Partner as you effectively own the business (Although you can still be paid via PAYE)

[Countdown]

MECHENG84 said:

Being a director can make re-mortgaging or obtaining a mortgage much more difficult over being an employee.

Under what circumstances?

[MECHENG84]

Countdown said:

Under what circumstances?

I'm not really sure why but somebody else may be able to explain that one further, I only know as both my brother in laws are Directors and they struggle to get normal high street mortgages/remortgaging options compared to that of a PAYE employee. When we bought our house my boss (who is the director of our company) was also telling me he struggled to get a mortgage due to being a director.

[Europa1]

Countdown said:

I stand to be corrected but "Equity Partner" and "Director" are two separate things. Whilst you may well be "both" it is not automatic.

Equity Partner = Owner/Shareholder

"Proper" Director = somebody appointed by the shareholders to run the company. This carries formal responsibilities and you're listed as a Director at Companies House.

"Not a proper" Director - basically a job title. No formal responsibilities, not registered at CH.

You can be an Employee and a Director at the same time. You cannot be an Employee and an equity Partner as you effectively own the business (Although you can still be paid via PAYE)

They are indeed 2 separate things, and from a strictly legal standpoint you can't be both.

Equity Partner - you are an owner of the business, which is a partnership, and share in its profits, but you are not a shareholder.

"Proper Director" - you are a director of a limited liability company, in which you may also own shares and share profits that way.

"Director in name only" - you have just started working for a merchant bank is the flippant definition.

There is also the concept of being a "shadow director". That's a place you don't want to be.

Edited by Europa1 on Tuesday 25th June 16:08

Edited by Europa1 on Tuesday 25th June 16:14

[Countdown]

MECHENG84 said:

I'm not really sure why but somebody else may be able to explain that one further, I only know as both my brother in laws are Directors and they struggle to get normal high street mortgages/remortgaging options compared to that of a PAYE employee. When we bought our house my boss (who is the director of our company) was also telling me he struggled to get a mortgage due to being a director.

That's probably because they're self-employed (owners of their respective businesses) and not paying themselves via PAYE. The two things aren't mutually exclusive but there can be tax advantages by not being PAYE.