setting up a small company with a friend. My contribution is greater than hers- how to set it up

(13 Posts)
townieatheart Mon 14-Mar-16 21:17:03

Ok, so I want to register a company limited by guarantee (I think) in order to carry on doing what I'm doing as a freelance mental health professional but to be in a position to receive some funding as well. There are funds to be accessed out there which are not available to me as an individual but are available for charities, CICs and companies limited by guarantee.

Now, I deliver some of the services with a colleague and was initially thinking of setting up a company with the two of us as directors. I thought that it would be good to have another person to share all the responsibilities with. But having thought about it now, I don't think it would work because I created all the training and have published papers in the field of work for which I have built my reputation in. My colleague has some great skills, but has no established reputation in the field, and is still learning the ropes. I like her as a person so wanted to work with someone i get on with, but also want to ensure that the new set up is fair on both of us. I think my friend is expecting to be equal in the partnership. I don't agree but haven't discussed it with her yet because I want to understand the options first.

I know I have to get some legal advice and all that, but before I do it, I wonder whether anyone has gone into business with a friend who was more of an assistant rather than an equal partner? And if you have, how did you divide the roles, responsibilities and finances?

Any ideas would be welcome- as it's obvious, I'm new to this whole business malarkey and am not much of an enterpreneur but am passionate about the work I do. TIA

SummerSazz Mon 14-Mar-16 21:19:37

You could set up as an LLP with equal or different membership interest (% ownership). The LLP agreement would set out who was contributing what and the split of drawings to each member - these can be different and based on certain criteria

townieatheart Mon 14-Mar-16 21:26:22

thank you for a speedy response SummerSazz. I gather an LLP is a limited liability partnership? Ok that sounds like an option. Never thought of that as I used to see partnership always being 50-50.
Or how about I am the only director and she has a different role, such as 'operations manager' perhaps and I pay her a fee for her services and carry on training with her?

SummerSazz Mon 14-Mar-16 21:34:16

Yes, it is. Having re read your OP I think I would avoid an ownership sharing arrangement as her expectations sound a bit off the mark. Having your own company and employing her would be much cleaner. Also she could have the job title of director without actually being a Company Director if she would like that kudos?

townieatheart Mon 14-Mar-16 21:38:26

Thank you Summer, that's really helpful. My sense is also that it would be much cleaner if I was the owner and then could give her a nice sounding job title. I don't want this arrangement to spoil the friendship but also want to be as open as possible right from the start. thanks again for your help!

IceMaiden73 Sun 20-Mar-16 07:35:25

I think the funding is a red herring as these are for charities or organisations, not profit making companies

Go and speak to an accountant about your options

dementedma Sun 20-Mar-16 07:41:22

Definitely take legal advice on the set up and get the correct paperwork drawn up. Speak to you local Chamber of Commerce - they offer free legal and HR advice to members and membership isn't very expensive ( and useful).

ClashCityRocker Sun 20-Mar-16 07:52:09

'Director' doesn't denote ownership in the company. You could have ownership in the company and not be a director, or vice versa.

Companies limited by guarantee are usually not-for-profit organisations and given the other options are cic's and charities I suspect that being an nfp would be a requirement for funding. This means that profits cannot be distributed but must be used to further the aims of the business (in this case, presumably working with mental health) which may or may not be your intention. Worth looking into further and taking proper advice so you're not in a position where if you withdraw profits you have to repay funding. I'd assume you could pay yourself a salary from the company, but not sure how much would be 'reasonable'.

ClashCityRocker Sun 20-Mar-16 07:54:23

But to answer your question, yes, you don't have to be 'equal' in the business.

ExtraHotLatteToGo Sun 20-Mar-16 07:58:25

Legal & technical stuff aside (I'm too long out of it to comment on that these days), I think you would be far better off doing this on your own & employing her. If this spoils your friendship, then going into business with her definitely will.

If you need someone else to hold a share/be a partner/whatever to get the best option to get the funding, then choose someone else and pick wisely. If you have a parent you get on well with, it's a good option.

Good luck going forward.

townieatheart Wed 23-Mar-16 21:19:15

Hi all,
Just noticed the replies from IceMaiden, dementedma, ClashCityRocker and ExtraHot...
Thank you everyone for your expert advice. So by the sounds of it, there are different ways of structuring the organisation where I can be the owner and can employ my friend for her work.

IceMaiden, Not sure why the funding is a red herring- the work is entirely non-profit making, but we need to be paid salary for our work to sustain the service. The funding body allows for charities, CiCs and companies limited by guarantee to apply for funding. I'm trying to avoid going down the charity route as it takes a very long time and doesn't seem necessary. Also, I'm keen on having more control over the work, rather than handing it over to the trustees (that's been my understanding of the structure for charities).

I need to find an advisor to get all these issues clarified. It's been suggested to approach the local Chamber of Commerce. I've just checked their membership rates and they are about £400 per year- is there another place I could get appropriate advice for less than that?

Many thanks everyone for answering my very basic questions- I'm just starting with all this research and am finding it rather mind boggling.

dementedma Wed 23-Mar-16 21:54:12

Do you have Business Gateway or Business Link where you are?

townieatheart Fri 25-Mar-16 13:57:32

Hi Demendetma,
Thanks for the suggestions. I 'm in London, so Business Gateway I believe is not applicaable as they're in Scotland. I've done the search for the Business Link but it seems that the programme has been scrapped, and replaced by one centralised service from gov.co website.

In the meantime, I've decided to meet a very experienced fundraiser, who knows the landscape for the type of funding schemes that are relevant to me, and will see from her experience how best to structure my own organisation. All I know for now is that I want it to be as simple as possible given that I would be going for small funds, but to provide sufficiently robust accounting and governance to be trustworthy enough for funders. And hopefully I don't have to take the charity route, but to stay as either Company limited by guarantee, or a social enterprise. It may well be that a one-person company may not be eligible for funding, in which case I may need to look into having say two or three directors, but as suggested previously, we don't have to have an equal say in the organisation.
Will update here how I get on with the process.
Thank you for your help everyone.

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