Discussion
I've identified an opportunity for a business I know well and pitched it to the CEO - he seems keen so I now need to work out the best way of structuring it. I have a regular job in the 60% bracket so I'm not interested in taking a salary and think profit share/equity is the best way forward. My current research suggests that structuring the new venture as a limited company split small percent to me and remaining to his existing business. I would then hold those shares through a company I owned and build up funds within that business to either withdraw over time at a future date, or liquidate paying capital gains.
Does anyone do similar and have a better way of structuring something like this? In short, I want profit share/equity and I'm trying to work out how best to structure it. I don't need the cash now but it would be good to be able to take it out in the future whilst minimising tax (not interested in anything involving moving to the middle east
).
Does anyone do similar and have a better way of structuring something like this? In short, I want profit share/equity and I'm trying to work out how best to structure it. I don't need the cash now but it would be good to be able to take it out in the future whilst minimising tax (not interested in anything involving moving to the middle east
).Couple of thoughts.
My interpretation is that you have an idea but the other company will be making the investment of money and effort needed to monetise that idea. In that case, you are right to recognise a lower share for yourself.
A Ltd company would be liable to pay Corporation Tax (19% to 25% depending on the amount of profit). If it's just you, that can be avoided by moving cash into a private pension. That may suit you but not the CEO who, with a greater share of the business may have different priorities and without any pre agreement in place, they would have veto on things like this. This could diminish your returns quite significantly from your initial expectations.
It would also be easy for you to be extracted from the company should they deem that necessary to their objectives.
Without knowing the detail, to me it seems a Ltd company adds unnecessary risk, complication and cost. You're looking at a longer term payback at minimal risk - no risk in fact. You might be better off striking a deal with the CEO for them to take over the idea in totality for a modest initial sum and quarterly or annual payments to you based upon the profits the idea generates. You can still minimise tax by placing what you get directly into a pension.
This would require a robust contract and the means of monitoring and control but affords the greatest simplicity for you and the company.
My interpretation is that you have an idea but the other company will be making the investment of money and effort needed to monetise that idea. In that case, you are right to recognise a lower share for yourself.
A Ltd company would be liable to pay Corporation Tax (19% to 25% depending on the amount of profit). If it's just you, that can be avoided by moving cash into a private pension. That may suit you but not the CEO who, with a greater share of the business may have different priorities and without any pre agreement in place, they would have veto on things like this. This could diminish your returns quite significantly from your initial expectations.
It would also be easy for you to be extracted from the company should they deem that necessary to their objectives.
Without knowing the detail, to me it seems a Ltd company adds unnecessary risk, complication and cost. You're looking at a longer term payback at minimal risk - no risk in fact. You might be better off striking a deal with the CEO for them to take over the idea in totality for a modest initial sum and quarterly or annual payments to you based upon the profits the idea generates. You can still minimise tax by placing what you get directly into a pension.
This would require a robust contract and the means of monitoring and control but affords the greatest simplicity for you and the company.
Thanks! That's right - I'm envisaging that I'll be involved in getting this new business set up with the new propositions but not in a day-to-day role. I may provide some funds but the business has the product, my ideas are on how to monetise it in a different way.
Whilst pension wasn't an idea I'd thought of, I think I'd rather not follow that route. I'm <40 and already have a sizeable pension pot and fill my allowance annually with my day-job bonus so would rather extract funds from this venture earlier to enjoy if it turns into something decent.
Whilst pension wasn't an idea I'd thought of, I think I'd rather not follow that route. I'm <40 and already have a sizeable pension pot and fill my allowance annually with my day-job bonus so would rather extract funds from this venture earlier to enjoy if it turns into something decent.
It sounds like you're in a position to shoulder a bit of risk on this - risk is directional proportional to returns.
There's many avenues to explore and you'd do well to engage an Accountant and possibly an IFA who can properly assess your situation and advise on the most optimal structure that suits you.
Beyond that is protecting your idea and making sure that the company you buddy up with will do it justice and that you will get what you want from it. Keep in mind that day to day, the success or otherwise is in the hands of the other company so trust is a vital part of that relationship.
Trust, friendship, and a warm and convivial professional relationship are easy to come by when there's little money involved and bags of opportunities - but can become tested when those opportunities are realised and the money starts flowing. So set out the ground rules from the very start.
Good luck
There's many avenues to explore and you'd do well to engage an Accountant and possibly an IFA who can properly assess your situation and advise on the most optimal structure that suits you.
Beyond that is protecting your idea and making sure that the company you buddy up with will do it justice and that you will get what you want from it. Keep in mind that day to day, the success or otherwise is in the hands of the other company so trust is a vital part of that relationship.
Trust, friendship, and a warm and convivial professional relationship are easy to come by when there's little money involved and bags of opportunities - but can become tested when those opportunities are realised and the money starts flowing. So set out the ground rules from the very start.
Good luck
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