BTWEA and shares in a startup?

[Dublin_Resident]

Hi All,

I started a business earlier this year through the Back to Work Enterprise Allowance scheme. I'm enjoying the challenge of being self employed and the BTWEA contribution every week is a great help while I keep plugging away for new business.

I recently met with a small company in the same field as myself and they are interested in collaborating with me as I have some skills that would be very useful to them. It's very early days with this but the option of shares (for me) in this company has already been suggested in return for my services.

I'm guessing we are talking about a small percentage of equity: 5 to 10% for example. I don't believe they would have the resources to pay me a fee for my services as I don't think they are revenue generating as yet.

If I were to take shares in this business, would that void my BTWEA?

An ideal solution for me would be if I could take a small amount of equity in the business and devote a day or 2 a week to the startup while trying to grow my own business the rest of the time (I still need to generate income as there will be nothing coming from the startup, certainly not in the beginning anyway).

Would I still be regarded as a sole trader / self employed in this scenario?

Any thoughts or feedback on this would be greatly appreciated!

 

[Dublin_Resident]

Any thoughts on this folks?

 

[newtothis]

Any thoughts on this folks?

Why not ask DSP what the situation would be? Frame it as a request to be directed to the relevant (written) rules around the scheme, rather than ask for an opinion (which will unlikely be made avalable in writing, and could well differ depending on who you talk to).

More importantly: minority shareholdings in private limted companies are essentially worthless. Even with a shareholders agreement in place (which will be costly and difficult to get water tight), you are completely at the mercy of the majority shareholder. Even if they fully intend to do right by you now, they could be put in a situation that leaves you holding worthless paper (e.g. cash gets tight, invester comes in and makes it a condition of investment that minority shareholders are wiped out).

It's a different scenario if you're one of a number of co-founders who's doing external work to keep food on the table whilst the business gets established,with the understanding you'll be fully committed once there's sifficient revenue to make it possible, but as you describe it - a part time person, working for equity - I think you are very exposed.

 

[Dublin_Resident]

Many thanks for the reply. I have actually emailed DSP on this, I'm yet to receive a reply so will follow up again.

I'm also a bit clearer on the offer that's on the table thanks to further conversations with the startup.

There is the potential to come in as a Director which for me would mean a higher equity stake than I previously thought (still to be negotiated). A quick google tells me a minority shareholding is anything under 50%. Even with an increased % equity in a director role it's extremely unlikely I will be coming on board with a 50% stake. Is there any other way to reduce the exposure as you say?

Of course it also means I would need to dedicate more time to the venture.

There is the potential to work on ad-hoc projects under the banner of this company. Normally I would invoice for this type of ad-hoc project work however I'm not sure if it is valid for a self employed person (Company A) to invoice a separate company (B) for which the self employed person is also a director?

That is probably a question for a separate forum.

I have given all of the above facts to DSP however I'm still open to suggestions here as well. It's a big decision so all the information I can get in advance is very much appreciated.