I happened to meet a friend of a friend who was setting up a business, part of this business included a niche in online advertising & retail planning which I have been involved with in the past. We got chatting it was apparent to me he was approaching things the wrong way. He invited me to meet up to pick my brain and I ended up spending an afternoon making a retail plan and advising various things, he has offered to pay me for my time/expertise in £ or with a share of the company hoping I may have a vested intrest and get on board again. He hasn’t got much money at the moment so I think he would sooner I have a %, I don’t have much money at the moment so I’m thinking of £.

I) the start up I think will do OK, but only make a small return so I’m skeptical about a %, has anyone ever done this before?
2) how would I declare a % as earnings as I now usually only get paid in £. (If I decide to go with this option)

I’ve done this before. With a start up software company. It is one of the best decisions I ever made in my life. At the time I thought ‘what have I got to lose. Its worth a punt’. It has delivered far, far, far more than I could ever have expected to be paid if I’d have just invoiced them

As far as earnings go. you’ll get share dividends and you declare them on your tax return, same as everything else.

Unless you’re completely broke and need to eat, go for it – you’re helpiong a pal as well.
You never know this could be you

Whenever I’ve received shares as payment for employment they’ve been treated for tax purposes as any other income, but the mechanisms for paying the tax have varied, for example some seem to be taxed when you sell the shares and not when you receive them. You may need an accountant to sort it all out for you.

Years ago, I got company shares as part of a pay deal.

A few years later, upon selling, those shares formed the bulk of the deposit for a house.

Do it.

Hang on a minute. He doesn’t want you to produce any pie charts does he? 😀

You could be the next David Choe (The graffiti artist who accepted shares to paint Facebook’s first offices in 2005 – now worth approx $500million)

Thanks, this is a clothing company my decision lies in that the designs are average and the market crowded. In all honesty I could & have produced better graphics myself. I have faith in him as a sales person so I’m seeing this more of a I plan & design he makes contacts and sells business.

As for the ‘payment’ in shares, you’ll get dividends on any profits the company makes, in proportion to your share in the company.

Very simplified tax position:

– If your normal income + the dividends is less than the high rate tax threshold (£40kish), the dividends are tax free.

– If it comes to more than high rate threshold, you’ll get taxed 25% on the dividend amount above the threshold.

– If your normal income is above the threshold, you’ll get taxed 25% on the whole dividend.

– If your income is £100k+, it’s different again, and you probably need an accountant.

Things to beware of:

(1) Without a properly constructed shareholders agreement / articles of association there is probably nothing to stop him issuing you with 100 shares today and then issuing 1,000,000 shares tomorrow to someone else (or even himself) massively diluting your share capital.

(2) Investors (if he is likely to bring them on board) don’t have any loyalty towards you. They will trample over you if necessary during any future exit etc. They may have a different view on strategy / company structure in the future.

(3) I’d want to understand his plan. eg. if it is to pay dividends and milk it for a long time that is different from never pay dividends and then hope for a big exit one day.

(4) Tax. If they are 1p shares then HMRC might decide they were notionally worth more than this and tax you on the true market value. There are specialists in dealing with HMRC on precisely this point, but they will cost thousands so probably not worth it. You will pay tax on any dividend and any capital gain at disposal.

(5) I’d have no desire to give away shares for one afternoon’s work. Shareholders are a PITA. To be honest I’ve done exactly what you describe for a couple of people and I wouldn’t charge for a few hours. Either I want to be part of it going forward (and I am demonstrating my value) or its favour for a friend of a friend. People have been similarly helpful to me in the past.

(6) One option that I think is neater for this sort of situation is a convertible loan. You basically put in place an agreement that says your consultancy was worth £ XX, and will accrue interest (compound) at Y%. He has the option to pay that in full at any time. You have the option to convert that (in full) to shares at any time that new shares are being issued or existing shares are being traded (which he has to tell you about) – at the same value and terms as the other transaction. This lets you become a shareholder with all the rights of an investor if the company is going to be formed in the right way, but it also lets him just give you cash if your presence is going to get in the way of that sort of deal, but avoids a big legal bill for a ‘trivial’ arrangement. You can get complicated and say the loan is to be repaid at Z per month and accrues no or low interest, but a higher rate if it is not repaid too… …basically whatever would work for you / him.

Thanks IHN, very useful.

Thanks, this is a clothing company my decision lies in that the designs are average and the market crowded. In all honesty I could & have produced better graphics myself. I have faith in him as a sales person so I’m seeing this more of a I plan & design he makes contacts and sells business.

thats a bit different… …if you would become the creative brains I would expect a proper chunk of company and appropriate shareholder protections etc. You need proper advice. I’m guessing you don’t have a lawyer – time to find one who specialised in commercial / company law (most would discuss the issues with you for 1/2 an hour foc in the hope of getting work later). IME commerical lawyers have a wide enough awareness of tax issues to help too, whereas accountants are very mechanistic about corporate law and will set you up a company etc – but no real idea of the bigger issues.

Worth noting that if it remains a small company the value of your shares will always be difficult to determine and/or realise due to the small/restricted nature of the market for them.

To be fair, any companies valuation has an element of ‘think of a number’ about it. They vary so wildly, depending on why they’re being bought, its almost impossible to predict what they’ll end up being sold for with any degree of accuracy

Yes, absolutely. But if you’ve never been involved in small/private companies you may not be aware of that 🙂

Pertinent, valid and informative advice? On here? Whatever next? 😉

😀

I left university part way through a .com boom, so loads of people were paid part in shares, although I don’t know anyone stupid enough to actually take a full payment in shares.

Never met anyone who actually made money from their shares – 99% of shares in small companies are worthless and can’t be sold.

You could be the person who painted Facebook’s offices, but you’re much more likely to be the person who painted one of the other 10,000 social media company offices at roughly the same time.

Unless you think the company is brilliant and a definite success story, then you just have to think of them as lottery tickets (except probably with way worse average return). If someone said they’d pay you in lottery tickets rather than money, would you do it?

If you really think you + him have a chance to make money, whereas him alone doesn’t, and you’re thinking of a long term thing, then you need to be thinking of it as a job (or as you starting a company with him), as opposed to a short term bit of work, and thinking differently to working as a temporary paid contractor.

Blimey Binners, sounds like you are a true capitalist at heart!!!! 😉

Ahem…. I prefer Champagne Socialist? 😉

“Cheers” then!!! 😉

Very useful thanks to all.

Do it.

Took shares as part of my package on joining. Value at the time was just under £7k.

In June we were bought by a major multinational and those shares are now worth almost £24k. At point of buyout, we had our shares guaranteed at that value so they can never drop below. Given our international growth and increase in market share, by the time my right to release some comes around, that figure might well have doubled again.

Well worth taking a punt at this. You’ll regret it if you don’t.

A friend of a friend in Cupertino CA got a job working for some hippies making computers in a garage as a temp secretary. They had little or no money to pay her wages so offered her stock in lieu of cash. She was broke too and needed cash for her rent.

The company? Apple.

Don’t forget to keep your share certificate somewhere secure

like a safe in the cellar!

http://singletrackworld.com/forum/topic/safe-cracking

🙂