Director of company/shareholders

Richard said:
I'm happy to work on a % of profits basis,
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Don't be - start-ups rarely make a decent profit in the early years.

Depending on your own circumstances if you're not going to be dependent on the return from this to pay your bills and are confident of his ability to make a fist of it then ask for a small annual retainer for your services and a % of the shares that reflects your contribution - and hence you'll be entitled to a % of any future dividends and a % of any sell-on price if he makes a good go of it while still getting a guaranteed payment. If he refuses to meet those requirements he's looking for cheap help so tell him to do one.
 
Richard said:
Evening blues, I've got a question I could do with some help with for those who own their own businesses and have an understanding about dividends, shareholders, directors, and all that exciting stuff.

In short, I've been asked to be a Director of a friends fairly new start up based in Manchester. I'll be expected to do some work for this organisation but won't be a shareholder. It's not a salaried role either, so my question obviously is how will I be paid?

I'm happy to work on a % of profits basis, but will I need to be a shareholder to do this? Or am I indeed being swindled?

This (as you can probably tell) is not my forte...
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I am in a similar situation however the company has been long established. I will say one thing to you....

If you are not a shareholder and invest a lot of your time in a company that could potentially fail, what security will you have if it does actually fail?
 
lancs blue said:
Don't be - start-ups rarely make a decent profit in the early years.

Depending on your own circumstances if you're not going to be dependent on the return from this to pay your bills and are confident of his ability to make a fist of it then ask for a small annual retainer for your services and a % of the shares that reflects your contribution - and hence you'll be entitled to a % of any future dividends and a % of any sell-on price if he makes a good go of it while still getting a guaranteed payment. If he refuses to meet those requirements he's looking for cheap help so tell him to do one.
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Thanks for the advice so far everyone.

I'll still be doing my full time work, so it's not like mortgage, bills etc depends on it, more of a 'let see where this goes, type of thing'.

But like you say, I have this nagging feeling that he's after cheap help. In which case, I'll take everyone else's advice and shit on his lawn.
 
Richard said:
'let see where this goes, type of thing'.
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Almost certainly the courts, I'd say.

There's absolutely NO benefit to you being a non shareholding non salaried director.

Surely if they pay you a share of the profits you become an employee in some way.
 
So, he asked you to be an active director, but didn’t tell you what the compensation would be or whether you would be reimbursed expenses or anything? He’s either a crappy friend or a crappy business man.
 
You should be aware that should anything go wrong with the business then, as a director, you would be held as accountable as all the other directors.

If they want your assistance you should draw up a Service Level Agreement with them that outlines what exactly the responsibilities are of both parties. If you then want payment for your services you should invoice them for those services.

If you go that way, remember to register as self-employed with HMRC (if you're not already) and to file your tax return when required.
 
You'd be better off being a shareholder rather than a director if necessary. A private company only needs one director but, as a director, you have a set of regulatory & legal responsibilties. So I'd be very clear about why your friend feels it's appropriate for you to be a director and steer well clear unless there's a very good reason.

Otherwise, you could just invoice him for any work done at an agreed rate without any formal involvement at all.
 
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