Buying into you employers company - Advice sought
Buying into you employers company - Advice sought
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Discussion

OverSteery

Original Poster:

3,789 posts

249 months

Sunday 5th October
quotequote all
So.... anybody got an idea on this. I am looking for what one of my old bosses might called an 'innovative commercial proposition'.

My son joined a small (limited) company. When he joined, the sole owner/operator/boss had a team of 3 or 4 independent subcontractors, and my son was the first proper employee (he had a mortgage to apply for). They get on really well and are now good friends.

A few years on, the company is now 15 staff and my son is very much the number 2 and increasingly runs operations of the company, including customer engagement for sales. The owner IS looking after my son and has advanced his salary well.
(Let's not be bogged down with how proud I am of my 26 year old son, who struggled to achieve anything at school).

So where does this go? He has some ambition, but is aware of the challenges of going it alone; but does he want to be an employee all his life....

"buying-in" to the business has been discussed between the two of them in a vague, possible, one-day manner. The existing owner has an energetic and able man running most of his business, he wont want to loose him, so has something to gain.

I am struggling to see a model that I can recommend to my son. He is in a position he can pay a fair price. If he wants something to happen, he needs to propose something...

1 - I can't see the existing owner selling more than 50% of the company- why would he?

2 - I can't see the existing owner wanting to sell exactly 50%; and if he did, how would a company run with 50:50 shares. Any difference of opinion, can be sorted, but no one is boss?

3 - Why would my son want to buy less than 50%, he's just a passenger, and open to abuse - although I don't doubt the integrity of the current owner.

So this can't the first time this circumstance has come about .... Any ideas how they can continue to work together, grow the company (as they currently are), but with a more incentive/ownership for my son.

I look forward to ideas!

thanks

Edited by OverSteery on Sunday 5th October 21:51

Countdown

45,474 posts

214 months

Sunday 5th October
quotequote all
It can work but it depends on what the current Owner wants.

H might sell some of the business with a view to taking more of a back seat and in the medium term have your son buy him out completely, or selling 50% of the company to your son reduces his level of risk. On the other hand he might not want a partner or he might value the company too much for your son to afford it.

How much would it cost for your son to set up a Tree surgeon business from scratch?

Mr Squarekins

1,381 posts

80 months

Sunday 5th October
quotequote all
Buying less than 50% doesn't necessarily mean 'open to abuse'.

It can and should mean, work to make the business a success, share the spoils each year, get the tax deductable benefits and one day, either buy up the controlling chunk when the main shareholder wants to retire, or sell the whole thing and take your share of the cash.

Joscal

2,435 posts

218 months

Sunday 5th October
quotequote all
Employee ownership trust may be an option? Think it’s need to be a Ltd company.

Serious tax advantages for the owner if it’s viable.

https://smallbusiness.co.uk/pros-and-cons-of-emplo...

Mr Overheads

2,546 posts

194 months

Sunday 5th October
quotequote all
How old is the founder? i.e. lets say he's 10 years away from retirement. Your son buys 10% per year for 10 years as long as agreed profit's/turnover is hit each year, so owner sees that your son has incentive to make it grow.
OR/AND
With equity part of his pay packet can be dividends, but option written in to spend those dividends buying shares instead of paying out at pre-agreed valuation method.

Talk to a corporate finance accountant and they'll have loads of ways to structure it so that the owner gets what they want and your son gets what he wants.

Terminator X

18,412 posts

222 months

Sunday 5th October
quotequote all
If he owns even part of the company he can get pro rata Dividends when the company is making a profit. 49% better than zero imho.

Buyer beware though, take good look through last few years of accounts + ask to see bank account and recent invoices etc. A company might have had a great 2024 but a disaster in 2025.

TX.

caziques

2,759 posts

186 months

Monday 6th October
quotequote all

The shareholders job is to appoint directors.

Shareholders receive dividends related to their shareholding.

A 51% shareholder can do what he likes with regard to directors, but note, directors have a statutory duty to act in the best interests of the company (and not trade whilst insolvent)

A 50/50 share split should be avoided, except when the shareholders are related.

Employees get paid, and this money can't be taken back. Directors can be paid via loans, but this money can be recovered (and there are other legal things to consider - refer to Eric Mc).

Shareholders get what's left after everything else has been paid.

LooneyTunes

8,423 posts

176 months

Monday 6th October
quotequote all
As usual, everyone is getting over excited by percentages.

It is entirely possible to create a different class of shares, with different voting rights (even different dividend rights), to allow ownership and control to be balanced in pretty much any way the parties choose. Indeed the shareholders agreement could even give one class of shareholder the right to buy the other out in certain circumstances (e.g. retirement of original owner, if a sale to a third party is contemplated).

The OP’s son’s decision and positioning is more complex when you look at it from an owner’s perspective:
Is it about the son’s aspirations or the longevity of the business?
How important is the OP’s son to that business?
What is the reaction of the other employees going to be?
What is the OP’s son likely to be if he knocks the conversation back?
How does the OP’s son act from the point a deal is signed?

If the business is of the type another poster has alluded to, that’s a young man’s game unless/until serious kit is involved to give you access to jobs a new startup can’t easily do. Staff retention isn’t easy because the cost of entry, at the bottom end, isn’t huge. Something is obviously working well if they’re keeping staff and growing.

You then get to the question of what the OP’s son actually wants: to own (some or all of) the company vs a proper share in the future upside.

The former is what most people think they want, when it can actually be the latter that they really want. Owning a share of a non-listed business ties up your wealth in a very illiquid asset that is subject to vagaries you can’t control.

Then factor in the “value” of any buy in. Does the owner need the money (i.e. is it actually the right time to liquidate some of what he’s already built)? Does the business need/benefit from additional investment (e..g. for further growth)? Each gives rise to quite different conversations: the latter is probably the easier one “I’d like to invest so that we can grow this business” (with, in the background perhaps lurking, the prospect that if he can’t invest in that business he might invest in a new one). Positioning it as contributing to the business and enhancing the owner’s economics will almost certainly be better received than one that could, if handled inelegantly, be perceived as having some undercurrent of entitlement to what already exists.

Were it me, I’d be trying to craft a proposal that saw £xxx invested in the business (e.g. for a bit of kit/whatever that would open up a new market, enhance returns, etc) with that £xxx representing yy % new equity (based on the current value of the company) + a formal agreement giving the option of first refusal when the current owner eventually wanted to sell up. It’s thinking like an owner and puts the conversation into territory that can’t easily be misconstrued.

fridaypassion

10,487 posts

246 months

Monday 6th October
quotequote all
If I was the owner I would make the employee a director and as above issue none voting shares and a contract that stipulates shares have to be sold back if he leaves.

He would be a fool to give up any meaningful equity. Having a reliable number 2 is great but as well as the lad has done he's not irreplaceable.

Now if the lad wants to buy in and can raise financing that's a different matter. If the company is worth 500k where's he's going to raise say 300k to buy half? (I would want my tax covered by the buyer if it was me)

Sometimes I think people can overplay their roles in the success of a business I think I'm not saying that the lads not done well but the owner is the guy that's made this a success and taken the risks. It's very easy to come along to an already successful business and want in.


StevieBee

14,430 posts

273 months

Monday 6th October
quotequote all
OverSteery said:
"buying-in" to the business has been discussed between the two of them in a vague, possible, one-day manner.
They really need to sit down and look to formalise these discussions because otherwise, all other points are somewhat moot. It's very easy and often happens for owners to throw out crumbs of potential opportunity to keep staff enthused in the business - or to just 'keep' staff but the reality of the extent of these offers are often quite different to what might be expected.

So as a priority, your son needs to establish the reality of the opportunity, what might be needed (cash) and when this will happen.

fridaypassion said:
He would be a fool to give up any meaningful equity. Having a reliable number 2 is great but as well as the lad has done he's not irreplaceable.

Now if the lad wants to buy in and can raise financing that's a different matter. If the company is worth 500k where's he's going to raise say 300k to buy half? (I would want my tax covered by the buyer if it was me)

Sometimes I think people can overplay their roles in the success of a business I think I'm not saying that the lads not done well but the owner is the guy that's made this a success and taken the risks. It's very easy to come along to an already successful business and want in.
I agree and these points are very important to keep in mind.





NDA

23,670 posts

243 months

Monday 6th October
quotequote all
fridaypassion said:
If I was the owner I would make the employee a director and as above issue none voting shares and a contract that stipulates shares have to be sold back if he leaves.

He would be a fool to give up any meaningful equity. Having a reliable number 2 is great but as well as the lad has done he's not irreplaceable.

Now if the lad wants to buy in and can raise financing that's a different matter. If the company is worth 500k where's he's going to raise say 300k to buy half? (I would want my tax covered by the buyer if it was me)

Sometimes I think people can overplay their roles in the success of a business I think I'm not saying that the lads not done well but the owner is the guy that's made this a success and taken the risks. It's very easy to come along to an already successful business and want in.
Agree with all of this. There's no 'right' to be a shareholder just because you're doing your job well. Also a shareholder of what exactly? Many small businesses have a limited value if the key people were to leave - I've no idea about this particular company though.

Many smallish companies offer 'growth shares' - shares or options based on the value of the business when an employee joins and the value when they leave. Options only work whilst you remain employed by the company.

Alternatively, and as above somewhere, there can be different classes of shares - assuming no EIS is being claimed (from memory). I had an ABC shareholding in my company with the C shares for certain employees and B's for directors.

It's a reasonably complex matter to set up an employee share scheme and perhaps the owner might consider it if that's the reason why your son might want to leave a job he's otherwise enjoying.