Thriving Company Receives Investment
The Background
Our clients had setup a new trading business, which had experienced rapid growth.
The business had a relationship with another business that was contributing to the rapid growth of the business and a proposition was made to the business that they would provide their services and continued leads, for free, in return for a stake in the business.
The proposed investment was for a 40% stake in the business.
The investors were interested in the growth of the business and an overall growth on their investment, rather than an income generating asset.
Problem
Our clients were taking dividends from the company as their main source of income, and bringing in new shareholders would affect their ability to take dividends out of the company, which was their main source of income.
They were keen to continue taking dividends from the company due to the tax benefits that it provided to them.
Solution
We worked with our clients and the investors so we understood the motivations and goals of everyone involved in transaction and the business going forward.
It was clear that whilst everyone wanted the company to grow, our clients needed annual income from the company and the investors didn’t, to a certain extent.
We were able to structure the shares in a way where B shares were issued, giving the new investors voting rights, income rights and capital rights, but also allowing control over which shares dividends were paid on.
This allowed our clients to continue to receive dividends from the company, without the need for dividends to be paid on the other share classes.
We assisted with the shareholders agreement and changing the rights on all of the shares to ensure that pre-emption rights were added to the company’s articles to ensure that existing shareholders were offered first refusal of the shares in the event that any shareholder wanted to sell their holding.
We were also able to ensure that profit levels were written into the agreement for dividends to be paid on the B shares, triggering the payment of dividends in the event of targets being met.
This gives the new investors the incentive to ensure that the company continues to perform and grow as it will provide them with an additional income and a return on their investment.
