Company Directors, Investors and Share Allocation: Can Someone Explain? - Business - Nairaland
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| Company Directors, Investors and Share Allocation: Can Someone Explain? by alwaysng(m): 10:57am On Feb 27, 2013 |
i am somehow confused in this share of a thing especially when one wants to start a new venture. lets assume i want to start a business that will require an initial funding of N2 million to take off, and i have an investor who is interested in releasing the fund and be made a director in the new business. the business is expected to grow and attract bigger investors that are willing to invest N10 million and be made directors as well. my only contribution is that i have registered the company (LTD) and i presently have 99% shares. Now my questions are: 1. How do i allocate shares to these investors? 2. How is the money the business will be generating be shared? 3. Am i to be giving them money on daily, weekly, monthly and yearly basis (in terms of revenue/profit? 4. how can i keep a minimum share of 55% to my self? 5. What if an investor wants his money back and pull out? 6. What are other things i need to know about company ownership and share allocation? Please explanations with illustrations will be highly appreciated. Thanks. |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by valdubem(m): 12:00pm On Feb 27, 2013 |
All these terms should be clearly spelt out by your company's lawyer in the memorandum of association. |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by chino4(m): 2:34pm On Feb 27, 2013 |
Allocation of shares to to directors of a company is usually done by your lawyer,give him instructions on how the shares should be shared ie let's say you get 50percent you can share the remaining to the other directors. Sharing of the revenue generated by the business can also be stated in the agreement between the parties,it is pertinent to note that whoever has larger shares would get more money.ie the guy with 50percent would definitely get more money compared to the guy with 10percent. Sharing of revenue is mostly done at the Annual General Meeting of company which is usually a duration of one year while other companies adopted the 18 months duration.its best to share revenue after a long period of time so that you would see if the company is operating at profit or loss. Your lawyer can re draft the memorandum of association to give you the required percentage.Alternatively you can make some of your family members share holders so that you can divide the 55 percent amongst yourselves. Return of money to investors is usually governed by the agreement between the parties,you should fashion it in such a way that it would give your company the required leverage to gather the required amount .ie 6 months . If you go through your memorandum of association drafted by your lawyer and the agreement between the parties in your case you should be up to speed in the matters relating to the formation of your company. Cheers Peter.08033589393 2 Likes |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by i1: 3:06pm On Feb 27, 2013 |
1. shares are allocated according to agreement of the parties 2. according to the shares of the company or agreement of the parties. your 55 percent may not entitle you to 55 percent share in proceeds if there is a seperate agreement. 3. the agreement will cover when returns are to be made but ususally such returns are to be made by the end of the year at the annual general meeting. 4. when preparing the articles allocate 55 percent to yourself. 5. if the investor pulls out, you can remove him as a director and shareholder by transferring his shares to another investor or person. 6. ps i will advise that when allocating shares initially get people to take up shares as your proxy so when future investors come you can allocate thier shares to the new investor or you van increase your share capital to create room for the new investors keeping in mind that you retain 55 percent. 2 Likes |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by Nazcoj(m): 3:57pm On Feb 27, 2013 |
That's true |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by fitzmayowa: 4:01pm On Feb 27, 2013 |
* following * i have alot to learn here |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by ebamma(m): 4:08pm On Feb 27, 2013 |
Go ask your lecturer, wetin be the need of the school were u been go stay for 4yrs? |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by akintun: 4:13pm On Feb 27, 2013 |
I think anyone investing 10million in ur business would have a great idea about allocation of shares. 1 Like |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by Regiblinkz(m): 4:17pm On Feb 27, 2013 |
First good thread in a long time..NL mods thumbs up 1 Like |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by healthcons: 4:23pm On Feb 27, 2013 |
check it out on google |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by manny4life(m): 4:25pm On Feb 27, 2013 |
alwaysng: i am somehow confused in this share of a thing especially when one wants to start a new venture. First off, I'll advice that you seek legal counsel 1. According to your Article of Incorporation, that should specify what kind of shares each person is buying and at what cost. You will allocate based upon the number of outstanding you have. 2. My advice, leave the "how will it be shared" policy. As a company and a corp like you put it, you should have retained earnings within the business. Everyone including yourself should be on "SALARY". Every reasonable investor knows this i.e. if they want to be active, run if they want you to share profits from the company right away. 3. Again, stay away from this principle. Even if you wanted to pay dividends to them, i.e. on a regular basis, stick it at once every 3 to 6months. This will make you not deal with issues arise from investor partnerships. This will determine what kind of stock they have mostly likely a preferred stock 4. You need a counsel or a law firm to this and classify your stock in a different class - where it cannot be touch. After the law firm has drafted it, please get a notary or court affidavit on it, this makes it authentic. If you decide to keep a minimum share, know what class of stock yours will be. 5. If an investor wants to pull out, depending on what types or class he's in, he may decide to sell or transfer to you. Some new startup bind that investors MAY NOT pull out till 2years, so draw up a contract, but when they decide to leave, they have options of selling, or transferring to someone else. 6. Share and allocation is a very complex theory in finance and I regret to tell it's not something you can learn on NL. Even some experts, certain complexities confuses them, please pay a firm money to guide you through this process, it's better to be safe than sorry. 2 Likes |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by Delafruita(m): 4:29pm On Feb 27, 2013 |
alwaysng: i am somehow confused in this share of a thing especially when one wants to start a new venture.before inviting anyone to invest in your business or idea,all these questions should have been answered by you and your team.if your only con tribution is that you registered the company,then i will be amazed at how an investor will put up 10million naira and you can still retain 55%. lets assume you get the investment and the sharing formula right,i will advise you let investors realise every business has an incubation period.they might not be able to get returns for a few years after which they will get yearly dividends on their investments. the frequency with which you give them returns will depend on your agreement with them and should be detailed in the MoU.however i will advise yearly returns. an investor has the right to pull out of a business for reasons known to them.however,as the business owner,you should insert clauses into the MoU that will protect your business in such cases.you could request a minimum of 3-6months notification. i will advise you do a thorough reseaerch on this.do this on your own and dont rely on a lawyer.determine what you want and how you want things to go because if things go awry,you will be the one to bear the burden 1 Like |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by Nobody: 4:47pm On Feb 27, 2013 |
alwaysng: i am somehow confused in this share of a thing especially when one wants to start a new venture. Hello alwaysng, I am a seasoned corporate lawyer and I currently act as company secretary to a number of companies. By virtue of my position, I provide a lot of advice on similar issues. Feel free to send me an e-mail at pearlstoneconsultants@gmail.com and we can discuss this further. I look forward to hearing from you. |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by sarutobi: 4:47pm On Feb 27, 2013 |
This is going to be interesting. I really do not have any contributions to this but i want to learn from the business gurus in the house. I am bookmarking this one! -------------- www.jobler.me 1 Like |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by romanlaw(m): 4:55pm On Feb 27, 2013 |
MY BROTHER, PLS JUST GET A LAWYER. HE/SHE WILL DEFINTELY HELP YOU SORT OUT ALL THESE ISSUES AND ALSO GO FURTHER TO LEGALISE ALL THE AGREEMENTS BY WAY OF DOCUMENTATION, PREPARING A MEMORANDUM OF UNDERSTANDING OR BUSSINESS VENTURE AGRREMENT. ALL THESE DOCUMENTATION ARE VERY VERY IMPORTANT NOW AND IN THE NEAR FUTURE, AS NO ONE IS TO BE TRUSTED IN BUSINESS. GOODLUCK. 1 Like |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by lovejo(m): 4:58pm On Feb 27, 2013 |
this link might be of help. http://www.youngentrepreneur.com/forum/f41-starting-up/allocating-shares-in-a-new-start-up-11389.html 1 Like |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by OmerianConsult: 5:02pm On Feb 27, 2013 |
Company law |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by Abbott(m): 5:05pm On Feb 27, 2013 |
As posted above, allocation of shares can be complex. However, your incorporation documents, the memorandum and articles of association will be altered to reflect the new members or the new increase in your share capital from 2m to 10m. All the decisions made by your company are known technically as resolutions. Your relationship with your investor(s) is contained and governed by a contract drawn up with provisions for every imaginable aspect of your relationship:funding, duties, obligations, management, control, profit sharing, termination, exit clauses etc. For all intents and purposes, the investors is like a co-owner of the biz and may get involved in day to day running or not. The investor usually will have a sit on the board so as to be privy to all the decisions you make concerning the company and they usually reap their returns by participating in the sharing of profits after payment of tax at the end of each business year of your company. |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by PBundles(m): 5:07pm On Feb 27, 2013 |
Manny4Life is spot on....GET LEGAL COUNSEL.Im an investment banker and I would be fooling you if I told you that on such a forum I would be able to explain the intricate nature in a simple form. My advice: State down what it is you wish to achieve at the end of the day, namely, • Control (at least 50.1%) • That investors dont leave easily • How profit ( dividends) will be shared and manner • Type, class and ranking of shares And request that legal counsel document this for you. You may look to even having some workers receive shares instead of salary if your idea is worth wile. Also note that the money you are investing doesn’t represent the percentage of investment. What I mean is that though you may have only invested NGN 2MM, your idea, contacts, business plane etc may be worth NGN 10 MM in the form of intangible value. Success!! |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by donguutti: 5:13pm On Feb 27, 2013 |
Allocation of shares would be determined by the "worth" or Present/future value of the company,the amount of cash to be invested and the Investors who would provide the 2million.Keeping a minimum of 55% equity to yourself would depend on how much equity(shares) your initial investor gets.If you Give them 45% and You would still have 55%.But if the business grows larger and more investors are required,Your Equity would be diluted by the same percentage of new shares created for the new investors E.g lets say your Coy has 10000 share capital-55% to you and 45% to your initial investor and you increase the share capital to by 2000 shares to accommodate new investors.your new equity ratio would be 5500/12000 ( 5500 being your former shares and 12000 being the new share capital with the new investors on board) .that would give you a 45.8 % ownership. Money generated (profits) would be shared according to equity( Simplistic!!!) Returns to shareholders would depend on your agreements, either weekly , monthly, half-yearly ect An investor who wants to divest could do so by selling to you or other shareholders( cant remember the technical term) or can sell to outsiders with the approval of the board of course. Do remember that Some investors might demand seats on the board(directors) |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by Abbott(m): 5:13pm On Feb 27, 2013 |
This is not the time nor the place to learn about these things. Get a good lawyer(Solicitor) |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by mrjingles(m): 5:31pm On Feb 27, 2013 |
There is no simple answer to your questions as it depends on the specific circumstances. You need not only a lawyer as most people here suggest but also a good business/financial adviser. The kind of business you are going into and the level of specialised skill, knowledge or technology required determines how much control you can exert (I am assuming you are the one with the required knowledge)And issues of ownership size also involves valuation thats why you need a business/financial adviser, using just a lawyer will not solve your issues. Go get you team together and be ready to pay them in cash or kind. |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by omogidi234(m): 5:51pm On Feb 27, 2013 |
@ OP, so far you have been privileged to obtain some of the best responses in relation to your query. Let me add that your lawyer will play a vital role in some of the questions bothering your mind, so please get a lawyer. In the meantime, your lawyer will draft a memorandum of understanding- MOU, between you and the intending investors where all of those posers would have been agreed upon and subsequently inserted as terms. I have done that for a couple of clients and they did not have to worry about investors' "wahala". Finally, on the issue of shares structure, your lawyer would explain to you among other things that you can be a director and not be a shareholder in a company and vice versa. You can also have the opportunity of being both in the company. Usually, a share is a unit of value you hold in a company and there is usually a nominal amount attached to each unit- most companies starts with N1.00. The implication is that someone who holds 5% in your 2, 000, 000 share capital has 100, 000 shares. The nominal value of that share is (100, 000 × N1.00)- these are some of the things you will consider when sharing profit. 1 Like |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by eldoradoxx: 6:06pm On Feb 27, 2013 |
Ask your solicitor to help u out, its really important. I suggest that u see gow to enter into Joint Venture Agreement/ Memorandum which will stipulate their equity participation in the company and dividend sharing formular as well as their rights, duties and liabilities. You also prepare Shareholding Agreement which may flow from the JVA. This shareholding agreement may entitle them to take up shares without necessarily being directors (note that not every subscriber to shares of a company is a director). The agreement may define the type of share they are acquiring and the benefits accruing thereto and will define what they are entitled to from their shares. However your company's Memorandum and Articles of Association will be what will guide you. |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by Krucifax(m): 6:06pm On Feb 27, 2013 |
alwaysng: i am somehow confused in this share of a thing especially when one wants to start a new venture. |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by Afam4eva(m): 7:21pm On Feb 27, 2013 |
These are the kind of topics we should be seeing on the frontpage... What i want to know is how to determine what percentage to give the initial investors. For instance, i just need Five Hundred Thousand to kick of a business and i don't have zilch and i get an investor that will invest the said amount. Knowing fully well that the business will grow to attract investors who are ready to drop billions of Naira, is it wise to give someone who's dropping 500k a huge percentage? Like maybe 10%. Is that not a waste? is their a formula for determining these things? |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by manny4life(m): 7:31pm On Feb 27, 2013 |
Afam4eva: These are the kind of topics we should be seeing on the frontpage... Technically, I haven't seen a formula in deciding how to allot share in partnership but simply just relying on the basic principle of money. First is to determine those who are giving you "seed money", is it as an equity or loan? Since you have a clear idea to open your business to the public, then you have to get it right at first. A simple agreement such as "I have the idea and other resource other than money and I control 70% and you bring the money and control 30% will work". As the business grows and needs financial resource, then you meet a lawyer and investment bankers who will appraise the value of the business. Value is where the real question is. To further your questions, "is it wise" all depends on how u look at it. Some investors don't need to control large equity in your business for several reasons including risk, but the trick is you have to invest in it as well. For the 10%, that's nothing, they will demand more than that. Unless you're willing to part with at least 30%, it's a pipe dream. 2 Likes |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by Philolos: 9:05pm On Feb 27, 2013 |
alwaysng: i am somehow confused in this share of a thing especially when one wants to start a new venture. @OP, your question is a finance one, with varying answers: 1. It depends. If you mean what you are saying that you are trying to raise funds from an investor(s), then the investor(s) owns a stake in the gains and risk of your venture. It would be up to the negotiations strength of the investor which would decide how much your venture is worth for how much stock he/she would be allocated in the company. Your investor(s) should also be aware that he/she may also loose all their investment. That's why most of us stay away from stocks.  High risk, high reward or high loses.2. You are already assuming your venture will make money. Good . The amount of gain, interest or dividend the investor would receive would depend on the amount of shares allocated or proportional to his/her investment.3. It depends on the venture. You may negotiate for no returns within the first 12 to 36 months, claiming that any profits would be rolled back into the business. But quarterly dividends or every 6-months, may be more practical than weekly or monthly. 4. This would be down to your negotiation skills and what you are bringing to the table. If all you are doing is registering the company and finding investors then you'll be lucky to hold onto majority share. You need to be doing more... Who is in charge of operations, etc? Do you have the money to hire right away? |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by PBundles(m): 10:53am On Feb 28, 2013 |
Afam4eva: These are the kind of topics we should be seeing on the frontpage... Hi there actually there is. An investor must be able to get a return on the same like risk. To keep it simple, their return would need to be AT MINIMUM what they would get at a bank whan placing a deposit. If that is say 15% at the moment, then an investor would want that as minimum since he could get 15% risk free ( Well almost , but I dont want to get into that) via a deposit at a bank. The additional amount you place would be the risk margin of investing. But the Minimum you know know. Hope this helps. |
| Re: Company Directors, Investors and Share Allocation: Can Someone Explain? by Hardfact: 9:58pm On Feb 28, 2013 |
Think veteran Jarus might know one or two things? |
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