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DH offered a a directorship

(20 Posts)
BikeRunSki Fri 13-Feb-15 18:26:30

DH has been offered a Directorship in the company he has mostly worked for for the last 7 years. He'd need to pay in £40-£60K. It's a civil engineering consultancy.

We have no idea what questions to ask! We'd need to borrow the money.

DH is forty this year.
We have 2 dc, 3 and 6.
I work p/t in a professional role on £21k/year plus car, pension, Ccv. Could go f/t on request.
We have just remortgaged and have £48k left to pay over 9 years. House was valued at £210k 2 months ago.
DH likes his job/the company and they clearly like him- he has been promoted twice in the last year.

My hesitances -
Just as DD has got her Early Years funding and there's light at the end of the mortgage tunnel, I am not sure that I want to take on a large loan. Assuming we could borrow £50k.

DH was put on short hours bubtge company 3.5 years ago because the company was struggling financially - a mix of unpaid invoices and less work coming in. He got another job and left, but they asked him back 18 months later when they'd called in a lot of debts and got some new contracts. They have been winning more and more work ever since, but those lean days still worry me.

ajandjjmum Fri 13-Feb-15 18:35:54

So he's been offered a directorship in return for buying some shares in the company. What do they want the money for? If they want to keep him, they could just offer him a directorship.

I suppose it depends on the people, if your DH trusts them, but I'd certainly talk it through with people who know you (and preferably them!).

Good luck - could be exciting times ahead!

FinallyHere Fri 13-Feb-15 18:36:32

Im not sure that we have any details of the package he is being offered? Move from a salary to invest and take dividends? Is that it?

BikeRunSki Fri 13-Feb-15 18:40:13

He'd be buying out one of the existing directors/partners who wants to retire. He is already Technical Director - as senior as he can be without a financial stake in the company.

ClashCityRocker Fri 13-Feb-15 18:41:21

What's his projected income?

Sometimes, directorships can be a lot more hassle for less, or not significantly more money.

What's he getting for his investment? Have the shares been professionally valued?

ajandjjmum Fri 13-Feb-15 18:42:55

Could be. In which case, why don't the current shareholders set it up so that the investment your DH is expected to make is provided through dividends over a period of time? I would suggest that he would still need to take a salary, and then any surplus dividends he gets over and above the agreed loan payment - in respect of the percentage of shares that he holds - could be a 'bonus' to your family.

How much is the company valued at? And what percentage of shares is he being offered? If he's being offer 10% for a company valued at £200,000 for £60,000, it's a bad deal! You really need professional advice - as well as deciding if it's something you want to do.

Maybe ask them to put their proposal in writing, so that you can take professional advice?

ajandjjmum Fri 13-Feb-15 18:44:08

x-post grin

BikeRunSki - he can be MD without a financial stake, if the shareholders offer him that position.

morethanpotatoprints Fri 13-Feb-15 18:49:58

I am th cautious type and would want to know what would happen to my home and future if the company ran into trouble.
How much liability would be involved.
Would you want to work ft with two small children?
Does your husband cope well under stress?
Would he be working far more hours and how would it affect the family.
What if the company doesn't make huge profits, enough to pay dividends, what would the bottom line be.
Considering you don't know what questions to ask means you need specialist advice, considering its a huge investment.

PopBitch Fri 13-Feb-15 18:53:52

I'd be cautious, they could make him a director without taking £50k from him

And the company was in trouble? I'd want to see full accounts for the past 5 years, a 5 year plan, revenue and expenditure projections AND I'd want to take professional advice.

BikeRunSki Fri 13-Feb-15 18:54:42

Thank you for all your advice. Lots of things to think about. What kid of person do I need to seek professional advice from?

He only went to see his boss about renewing the lease on his car!

Hoppinggreen Fri 13-Feb-15 22:19:08

He needs to know what percentage he is getting for that amount of money.
That will show what the company is valued at . He then needs to know if the turnover and projected profits support this valuation.
He shouldn't need to pay his stake upfront either, there are better ways of doing it.
Sounds to me that they are asking for a cash injection from him rather than offering him something and he needs to question WHY they need that.

DeliciousMonster Sat 14-Feb-15 09:01:27

Personally, I think they need a shot of cash otherwise it would have been a bit more thought through.

I'd think of it as - what other checks and balances would you do if you were to invest in a company you didn't know? You want all that. Plus do some digging into the backgrounds of the current directors.

Also - Can you afford to lose £50k if it goes wrong?

ClashCityRocker Sat 14-Feb-15 09:10:45

BikeRunSki

Some accountants can help with this sort of thing. Do not use the companies accountants (they should refuse to act in this sort of situation, but it does happen). Most accountants will have a corporate finance department who deal with this sort of thing.

I would want to see accounts for the last five years, forecasts, and would be looking at getting the company valued by an independent.

50-60k could just be a figure they've plucked out of the thin air.

flowery Sat 14-Feb-15 15:50:36

I would want to be very clear what they think is in it for him. He'll be out of pocket to the tune of £50k-£60k -more if you borrow and take into account interest- and will have extra legal responsibilities and liabilities. What selling point are they using?

AcrossthePond55 Sat 14-Feb-15 18:41:41

You want to be sure they're not offering him this 'opportunity' in order to gain cash needed to keep the business afloat. Does the company not have the capital to 'buy out' the existing director as he's wanting to retire?

I don't have a lot of experience in this but I know the company my son works for has to buy him out of his directorship if he leaves and they want him to relinquish the shares/votes he has. Nothing about finding someone to buy him out and take his place before he goes, either.

BictoriaVeckham Sat 14-Feb-15 18:51:36

In his position, I'd be all over the finances of the Company like a rash

Look at:
EBIT
Return on capital employed (ROCE)
Sales / margin

Speak to someone about what the money is required for

BictoriaVeckham Sat 14-Feb-15 18:55:51

Also, he needs to think of the responsibilities he will hold as a Director

See here www.iod.com/guidance/briefings/cgbis-directors-duties-and-responsibilities

Unescorted Sat 14-Feb-15 19:02:40

I would also consider the sector - engineering consultancy a multitude of sins. Eg construction, nuclear, infrastructure (sub sectors rail, road etc).

Have they won any of the large contracts recently let - HS2, NuGen, etc. Or are they on any of the government procurement panels? What is the pipeline work like.

ajandjjmum Sun 15-Feb-15 08:24:45

My understanding is that someone has to own the company, so the company can't buy the shares in itself - it has to be an outside party.

Now that the OP has said that one partner wants to retire and sell his shares, it sort of makes more sense, although still needs to be checked over professionally. If it's a solid business, it could be a good opportunity.

Although the fact remains that you can still be Director of a company without being a shareholder.

Musicaltheatremum Sun 15-Feb-15 12:49:03

A lot of partnerships have a buy in clause. You contribute capital to the partnership and when you leave you get it out. The capital can be for various reasons. My husband was a lawyer and had to pay £50k in when he joined in the early 90s. He paid in i stages as his profit share went up. You would get a business loan for this and get tax relief on the interest you pay. In theory you don't need to pay off the loan as whoever comes in will buy you out.
But.... You need independent accountancy advice to see whether this is a good idea or not. I am a GP and even we have to buy into partnership for working capital or the building.

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