UK Shareholding Rights and Classes of Shares

[AdviceNeeded]

Hi, I have a question I hope you can help with.

I run a small web design business, and own all shares. I have the opportunity to join a larger business owned 90% and 10% by two people, in exchange for 10% from the majority shareholder (making approx 80,10,10). My smaller business would be bought for cash by the larger company (goodwill, existing clients).

As monthly director salaries are effectively made up of small under NI threshold payments, plus dividend, the two existing shareholders have different classes of shares. This is so that monthly dividend can be paid broadly similarly, without the larger shareholder being owed huge amounts in dividend. If I joined them, I would receive the same class of share as the minority shareholder.

My question is this: is there a risk further down the line (following a dispute or otherwise) that the majority shareholder, with a controlling shareholding, could decide that his class of share receives a huge dividend, and the second class of share receives none? Essentially rendering the second class of share worthless?

I will of course be taking advice from my accountant, but they're on holiday at the minute.

Thanks in advance for any advice.

 

[Fidget]

Ultimately, you need to find out what their process for agreeing dividends is.

Just because one party will hold 80% of the shares, doesn't necessarily mean that they have the final say in how much and to whom, dividends are payable. So you need to find out how the process works. Ideally, you want to see it documented rather than in a phone call.

Something else you might want to do is find out what the difference is between the two classes of shares to see what, if any, priority one class has over the other as there might be situations where your class of share doesn't qualify for a dividend, for example, if distributable profits are below a certain level. And if there is, then you can look at past history and forward forecasts to gauge the likelihood of that happening.

There's a couple of ideas for you, but be sure to take independent advice before you sign up to anything.

 

[AdviceNeeded]

Thanks for your advice Fidget, I think you're right - the devil will be in the detail of the Shareholders Agreement. Your examples are food for thought too.

Many thanks