Partnership offer

hi,

I've been offered a partnership at my present place of employment, I'm just wondering how to handle it
at the beginning? I will of course need professional financial advice from an accountant at some stage (or do I?)
Things are at a very preliminary stage but I just wanted to be on the ball so any advice is appreciated

thanks in advance

Will you become a director of the company? If so, you will have certain responsibilities - see [broken link removed] for info. You will also have certain advantages in relation to pension contributions. Your accountant will tell you more.

How much of the company are they offering, if any? A minority shareholding is often worthless in that you might be unable to influence the other directors.

Will you get a share of profits appropriate to your shareholding?

These are the first things I would be asking.

Do as much research as you can as to why the offer is being made at this stage.

If you are getting an accountants advice then make sure you find one that is familiar with the business that you are in. Do not use the same one that the current business uses.

Research the possibility of going it alone.

Do you have to make an 'investment' in the business. Where does this money go?

Partnership agreements are difficult at the best of times and it is impossible to cover all eventualities in it.

I would liken it to being married. It can be a match made in heaven or something that goes terribly wrong.

as far as becoming a director, well we're not a limited business so that doesn't really apply does it?
I assume there'll be a legal partnership agreement or consider the option of becoming a Ltd company.

The partnership is being offered to three employees to facilitate
the eventual retirement of the boss, we envisiage the split to be
55% to the boss and 45% split three ways i.e 15% each. The
original 15% is being offered without any cash payment on our behalf,
payment will be through increased workload and responsibilities.
There is an end goal of the three of us in 5 years buying out
the 55%.

kiwijbob said:

The original 15% is being offered without any cash payment on our behalf, payment will be through increased workload and responsibilities.

Click to expand...

You might consider that this is very specific information on a public board, which could easily come to the attention of your boss.

So in other words, it sounds like you are each being offered 15% of the business, now, with no payment due to the proprietor. Does that mean you will be entitled to 15% of the profits? If so, will you have any control over the costs (such as amounts withdrawn by the boss), which could have a dramatic effect on the size of your dividend or profit share?

How are you going to value the business when it comes to buying out the other 55%?

If you are getting 15% of something of value and you do not have to pay for it then this will give rise to a Tax liability.
I think that there is a scheme where he can give you 2% per year without giving rise to any tax liability.

It's a very difficult tax area and you should get advice on the proposed structure.

As a partner, you will be jointly and severally liable for the debts of the business. In other words, all four of you will be fully liable without any limitation on your liability. If one has no assets, the others must pay his share of the liabilities.

The partnership agreement will be the key thing. It must specify the salaries of the partners. It must also show how you can exit if you want to, or if your partners want you out. It should also value the bit the majority partner is selling.

At this stage, the main thing would be to get the accounts to see how profitable the business is. If you sign up to be a partner, there will probably be restrictions on your entering into competition subsequently.

Listen to your boss's proposals and come back with more information, without identifying the business.

Brendan

cheers, great points re tax liability