New business partner & percentage of equity

[reset5]

Hi guys,

With regard to selling equity in a company (in return for investment), my understanding is that there is a power threshold at 25%, i.e. if the investor owns less than 25% (and the other shareholder holds the remainder), he/she has no real decision making power. If he/she owns 25% or more, that person then has some say - pretty vague I know. Do any of you know anything about this? If, for example, the majority shareholder and day-to-day manager of business decided to pay themselves the business' profit as a directors fee, would the other investor have any way to contest this if, a) had less than 25%, b) had 25% or more.

I know there are different types of shares that have no voting rights but i'm wondering about the above situation with 'normal' shares.

ps i'm not about to screw someone here. Just want to know the facts so can explain situation to a newcomer.

thanks
Ger

 

[mirmick]

Hi guys,

With regard to selling equity in a company (in return for investment), my understanding is that there is a power threshold at 25%, i.e. if the investor owns less than 25% (and the other shareholder holds the remainder), he/she has no real decision making power. If he/she owns 25% or more, that person then has some say - pretty vague I know. Do any of you know anything about this? If, for example, the majority shareholder and day-to-day manager of business decided to pay themselves the business' profit as a directors fee, would the other investor have any way to contest this if, a) had less than 25%, b) had 25% or more.

I know there are different types of shares that have no voting rights but i'm wondering about the above situation with 'normal' shares.

ps i'm not about to screw someone here. Just want to know the facts so can explain situation to a newcomer.

thanks
Ger

It does not matter what the % minority share holder got, courts protect the minority share holder rights if the majority share holder screws his/her interest. If the majority share holder decides to get the director fee out of company's profits and it does not harm the company as a whole then minority shareholder cant object on it.

 

[podowd]

51% is the controlling interest so anything more than that makes you the majority shareholder who (in theory) can't be over-ruled. however as mirmick says there is legislation in place to prevent minority shareholders being screwed. That aside, if an individual is involved in the day-to-day running of a business they are fully entitled to a salary or directors fee and the payment of this would not be seen as an issue (as long as all profits were not coincidentally wiped out by the directors fees and the minority shareholder was therefore deprived of any dividends). any fees payable to the majority shareholder/director for work done should be paid as salary for the avoidance of any doubt over whether it's payment in lieu of work done or a preferential dividend.