Another "work for equity" thread Another "work for equity" thread
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  1. #1

    Nervous Newbie


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    Smile Another "work for equity" thread

    Long-time lurker, first time poster: looking for advice on the best way to structure an equity based deal.

    First off the bat : yes I am going into this eyes open, I am aware of the risk that I will get a big fat cheque for zero pounds.

    I'm a freelance web developer: sole-trader, not VAT registered. Previously done some work Client to build an online fee based service - work done, everyone happy : gone through my books, all paid up 👌🏼. Client is out of cash and has come back to me with an equity based deal. They need some additional development work done (perhaps a couple of weeks of time) plus are asking for on-going consultancy (a day or two a month) to keep things ticking over (manage their Google ads etc.) The deal is for a healthy chunk of the business - 20% split into 4 stages based on turnover/profits/sales (t.b.c): these will be ordinary shares with a hefty agreement in place including specifics around when dividends have to be paid.

    My question is how to best to structure the arrangement. Their accountant is proposing existing shares are transferred by way of a gift, using Hold Over Relief to ensure no CGT is incurred unless/until I were to sell them. But all "" work "" that I do for them is strictly off the books - it doesn't go through my sole-trader business - just me, in my spare time. The only thing I'd need to do is pay tax if/when I receive dividend payments.

    Am i right to be concerned by this arrangement? It just doesn't seem to stack up in my mind. I'd rather not get HMRC hounding me for "disguised renumeration" or some such. Up until now I've been perfectly comfortable doing my own returns using FreeAgent - feeling quite a bit out of my depth with it all. Is their a better approach I should be suggesting? Becoming a Director was mentioned at one point, but their accountant seemed reluctant about this.

  2. #2

    bored now

    eek's Avatar
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    2 questions -

    1) why don’t they have the money to pay you now and is that really likely to change. As unless you can see why it will change you aren’t going to get paid
    2) what do they sell and is it actually worth the effort - could you do something else in that time which earns more


    also I seriously doubt they are running the scheme in a legal way - it requires serious effort and money (not much but a few £k) to set up a legal share scheme and if they can’t pay you now they haven’t got the money to do that correctly.
    merely at clientco for the entertainment

  3. #3

    My post count is Majestic

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    What Eek says. Nothing about this looks good from here. Bearing in mind this is a risk vs reward situation what do you think the best case reward is and worst case outcome.
    If the best case is you can make 400 quid a day and worstnis nothing you might as well ditch it and go get a proper gig etc.
    'CUK forum personality of 2011 - Winner - Yes really!!!!

  4. #4

    Nervous Newbie


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    Quote Originally Posted by eek View Post
    1) why don’t they have the money to pay you now and is that really likely to change. As unless you can see why it will change you aren’t going to get paid
    2) what do they sell and is it actually worth the effort - could you do something else in that time which earns more


    also I seriously doubt they are running the scheme in a legal way - it requires serious effort and money (not much but a few £k) to set up a legal share scheme and if they can’t pay you now they haven’t got the money to do that correctly.
    It's a solopreneur who is self-funding the development of his idea: it's yet to launch to market, hence why it's not generating revenue. Yes, I believe the value-prop is sound, otherwise I wouldn't be here asking for pointers. This isn't "instead of" other gigs - aside from the initial chunk of work, it'll be a few hours in an evening every now and again.

    Appreciate comments on share schemes - right now this isn't what's being proposed - it's a straight up offer of equity. If I should be suggesting a share scheme, then which one and why - afaik they're all employee schemes?

  5. #5

    Godlike

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    I don't understand why your effort would result in shares 'gifted' to you based on a turnover and profit basis.
    If you enter this tell them you want 20% shares before you start. No jam tomorrow.

    Also note that with just 20%, the other shareholders can dilute your holding. Unless the shareholders agreement has clauses in place to prevent that. I'm not suggesting you should ask for 25%, but you should consider how little power a 20% shareholder has. The shareholders agreement will limit what can be done.
    See You Next Tuesday

  6. #6

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    You may claim to be self-employed but HMRC would probably deem this to be employment and view these as employment-related securities. You'll want professional advice.

  7. #7

    Respect my authoritah!

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    I've worked a three times for either equity or for a percentage of sales. It worked out once - and that was very lucrative. For five years, I got 15% of all sales made.
    Down with racism. Long live miscegenation!

  8. #8

    More fingers than teeth

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    If this is something on the side as it sounds like, I wouldn't unduly worry, worth a shot.

    The worst that can happen is that the company becomes worthless. There is a high probability of that, but nothing ventured as they say.
    I'm alright Jack

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