Investing in a company.

I have never done anything like this before but was offered to invest in a company which unlike a lot of them in the current climate is doing reasonably well.
I would own 35% of the company. However I am a bit clueless. What does this mean for me?
-What protections can I put in place for my investment - if any?
-What responsibilities will I have?
-How would this affect me then regards to being self employed?
-Would that mean I am self employed or just own 35% of a company?
-What way am I expected to deal with tax, would the companies accountant look after things or would I be expected to have my own accountant?

I am not jumping in the deep end without knowing anything, I know the type of business they are involved in and how it works its just when it comes to companies and that sort of thing I am a bit clueless. Any help is appreciated.

Quick fire replies to your questions;

What protections can I put in place for my investment - if any?
Because you would be a shareholder you have complete exposure to the companies activities, the directors run the company on a day-to-day basis on your behalf but you are ultimately responsible. Is there a shareholders agreement in place already?, if Yes get a copy, if No then there should be.

What responsibilities will I have?
Loads, too many to detail here, google it.

How would this affect me then regards to being self employed?
As I understand your question, they aren't employing you. You are buying shares in the company and becoming a shareholder.

Would that mean I am self employed or just own 35% of a company?
Shareholder holding 35% of the shares (follow on question: are they voting shares?)

What way am I expected to deal with tax, would the companies accountant look after things or would I be expected to have my own accountant?
You will need your own advisors (accountant/solicitor) to make the investment going in correctly and protect your interests.

Hope this helps.

Thanks man. No I wouldnt be working for them, just an investor. So if the company was sued etc, that includes me?

JamesGG said:

Thanks man. No I wouldnt be working for them, just an investor. So if the company was sued etc, that includes me?

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Being a director puts you in the firing line for most things. Being a non-director with a shareholding has far fewer legal obligations.
If you do invest make sure that you have access to accounts etc from day one. If you don't understand accounts make sure that your accountant can waltz in any time and loom over things.

If you buy into the business what's in it for you?
A minority shareholder in a private company is worthless unless it's structured right.
What say will you have in the business?
What income will you get?
What say will you have in what income levels everyone else gets? (If you are relying on a divident/profit share then you better make sure the other shareholders who are running the business don't just take all of the excess out in wages leaving you with a 35% share of nothing.)
Who are directors?
Who's authorised to sign cheques/ move money out of the business?
Who's the auditor?
Is there a financial controller and if so are they a shareholder and/or director?

Do you have anyone on your side on the inside?

What agreement is there in case you want out at a later date?

Do you homework on the business and the people involved and if you smell a rat walk away.

I would be asking the question of why is the company willing to give you 35% of their company for x amount of cash!

Unfortunately, investing in a company is not like investing in a bank where you have clear terms and conditions and can decide if you want a risky higher interest account or a guaranteed but low interest account.

Personally despite what you might think I would have to assume that your investment is high risk and therefore you should be demanding a high rate of return.

As somone else has mentioned 35% gives you no control and more than likely even if they were offering you 75% of the shares you would still not be in control in so far as you are not a director.

Therefore I wonder if you are better requesting x%preference shares. At least this way the amount you earn each year will be defined and that you get to take your cut out of the company before the other shareholders. Obviously the downside is that if there is a massive profit you are stuck with x%.

Finally, a question for yourself. How would you feel/get by if the company never paid you back a single cent? Sorry, I have to ask as I have unfortunately seen it happen a lot so would hate to think we are talking a very substantial amount of your personal savings or worse yet that you were going to be borrowing the money.

jack2009 said:

that you were going to be borrowing the money.

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Goods points above just to add, never ever borrow money for shares.

Also can you afford to lose this investment, in many ways its not much different to having a punt with paddy power. Is this the kids college fund you hope to double etc.

jack2009 said:

Finally, a question for yourself. How would you feel/get by if the company never paid you back a single cent? Sorry, I have to ask as I have unfortunately seen it happen a lot so would hate to think we are talking a very substantial amount of your personal savings or worse yet that you were going to be borrowing the money.

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No no borrowing, this is savings but I am aware how hard money is to come by these days. I would not be happy at all if they never gave me back a single cent. However I have seen the company grow (not from accounts) but from looking at clients and so on they have grown over the past two years.

If this growth continued it does look promising, it is not a mass market service it is more a niche market service and they have a lot of what you would call hard work, getting high profile clients under their belt already done.

They say they want the money to expand and while their figures are ambitious they do not seem unachievable.