Please Help- Small Business

[newby_investor]

If he's got a 51% stake in the business then the only way for him to get a "return" is either by the business (or someone else) buying his share from him (at whatever price gets negotiated), or through a dividend in which case it gets issued to all shareholders proportionally and he retains the equity.

If he's expecting to be paid back with interest then you can talk about a % return, but that's called a loan and he's not a shareholder. The interest rate should be proportional to the risks of the business not paying back the loan.

Edit:
After re-reading your post, OP, it sounds as though what you are describing is a loan, not a "capital injection" as such. Small businesses often take months or years to be properly profitable, not to put you off but I think it's clear that you should understand the difference between these two options for raising funds for the business.

 

[The_Ogre]

Of course you have to ask.

Not everybody knows absolutely everything about everything, like you do...

Sure, pay through your ass for a CA, or register a company online for R150.. Besides, how's that going to help him; the other guy gave him a loan. All they had to do(sounds like the wheels are rolling already) was agree to the terms

 

[Venomous]

OP,

Please do remember that if he owns 51% of the shares he can pretty much sell the company and there is nothing you can do to stop him.
(there are obviously much detail being left out above, that's the short version)

Could you not take a loan from the friend and pay it back, in installments, once the business reaches X point?
That way it's yours...

 

[TheMightyQuin]

Sure, pay through your ass for a CA, or register a company online for R150.. Besides, how's that going to help him; the other guy gave him a loan. All they had to do(sounds like the wheels are rolling already) was agree to the terms

That's right...jump right in with perfect hindsight.

Your comments now, after the OP has provided more info, are completely different from your initial ones, aren't they?

Initially you merely insulted the OP, because he dared ask a question about a subject he knew nothing about.

 

[The_Ogre]

That's right...jump right in with perfect hindsight.

Your comments now, after the OP has provided more info, are completely different from your initial ones, aren't they?

Initially you merely insulted the OP, because he dared ask a question about a subject he knew nothing about.

Deflecting...

Why would you advise the guy to employ the services of a CA and have board meetings and schit? Did I mislead him at any point? In fact, how much do you know about the new companies' act? You do know that decisions around the company can be done entirely electronically now. Yes, a whatsapp group to discuss "we're selling the company" is a legal meeting now? What kuk are you talking about board meetings for a one-man show?

If I were to advise him of anything, I'd say he should go talk to someone who specialises in business law.

 

[TheMightyQuin]

Deflecting...

Why would you advise the guy to employ the services of a CA and have board meetings and schit? Did I mislead him at any point? In fact, how much do you know about the new companies' act? You do know that decisions around the company can be done entirely electronically now. Yes, a whatsapp group to discuss "we're selling the company" is a legal meeting now? What kuk are you talking about board meetings for a one-man show?

If I were to advise him of anything, I'd say he should go talk to someone who specialises in business law.

I have owned a Pty Ltd for 20 years, in a partnership.
If you have 2 partners, both need to be listed on your company registration at CIPRO.
Usually in a 2 man partnership, shares are issued at R1 per share and you appoint your CA to also own 2 shares, in case a decision deadlock has to be broken.
If both parties are married, a Buy and Sell Agreement is recommended.
One partnership meeting per year is required with minutes kept, signed and filed.
If one partner puts cash into the business as seed money, as is implied in further posts buy the OP, it would probably have to be managed as a Loan Account etc.

To answer some more of your questions:

No, you didn't mislead him at any point at all. You read his question and decided it was stupid, not worth any answer and he shouldn't start a business at all.
How is a partnership a one man show?
A CA is overkill, but he should "go talk to someone who specializes in business law"?
Of course you can discuss selling the company in a Whatsapp group...you can say whatever you want on social media. Drawing up a business contract however on social media is ludicrous.

 

[The_Ogre]

I have owned a Pty Ltd for 20 years, in a partnership.
If you have 2 partners, both need to be listed on your company registration at CIPRO.
Usually in a 2 man partnership, shares are issued at R1 per share and you appoint your CA to also own 2 shares, in case a decision deadlock has to be broken.
If both parties are married, a Buy and Sell Agreement is recommended.
One partnership meeting per year is required with minutes kept, signed and filed.
If one partner puts cash into the business as seed money, as is implied in further posts buy the OP, it would probably have to be managed as a Loan Account etc.

To answer some more of your questions:

No, you didn't mislead him at any point at all. You read his question and decided it was stupid, not worth any answer and he shouldn't start a business at all.
How is a partnership a one man show?
A CA is overkill, but he should "go talk to someone who specializes in business law"?
Of course you can discuss selling the company in a Whatsapp group...you can say whatever you want on social media. Drawing up a business contract however on social media is ludicrous.

Yeah, just like I thought. You know the law of 20 years ago. Please go and read up on the companies' act of 2008. Here we go http://www.cipc.co.za/files/2413/9452/7679/CompaniesAct71_2008.pdf

Also if you think a CA is a business/corporate lawyer, then I've got bad news for you. Then again, if you refer to a PTY LTD as a partnership, I won't blame you for not knowing what a CA does.

Oh, and it's CIPC, CIPRO is long dead.

In the meantime, stop providing stupid advice to people.

PS. I'm not even going to go into my directorships in companies, let alone those I own outright.

 

[TheMightyQuin]

Yeah, just like I thought. You know the law of 20 years ago. Please go and read up on the companies' act of 2008. Here we go http://www.cipc.co.za/files/2413/9452/7679/CompaniesAct71_2008.pdf

Also if you think a CA is a business/corporate lawyer, then I've got bad news for you. Then again, if you refer to a PTY LTD as a partnership, I won't blame you for not knowing what a CA does.

Oh, and it's CIPC, CIPRO is long dead.

In the meantime, stop providing stupid advice to people.

PS. I'm not even going to go into my directorships in companies, let alone those I own outright.

You obviously have a reading disability, as everything you quote me as having said, is completely wrong.

Anyway, oh huge captain of industry, I'll leave you to it.

 

[Swa]

OP,

Please do remember that if he owns 51% of the shares he can pretty much sell the company and there is nothing you can do to stop him.
(there are obviously much detail being left out above, that's the short version)

Could you not take a loan from the friend and pay it back, in installments, once the business reaches X point?
That way it's yours...

He can sell his share. Can't exactly sell the company. But in any case I wouldn't give a simple investor 51%.

 

[joker08]

He can sell his share. Can't exactly sell the company. But in any case I wouldn't give a simple investor 51%.

It's a small business and that person is his friend so depends how good of a friend he is. Is he a friend or an acquaintance ? Does he have a lot of money and is just helping the op out ?

 

[newby_investor]

It's a small business and that person is his friend so depends how good of a friend he is. Is he a friend or an acquaintance ? Does he have a lot of money and is just helping the op out ?

We don't know the details of this one obviously but I've learned by sad experience not to go into business with a friend. It can easily end in ugliness and being out-of-pocket. In any case it makes sense to ensure that strict contracts are in place whatever the terms.

 

[CT_Biker]

Why don't you offer a holding stake in the business?

Split the risk by giving the investor a 30% holding stake in the business, keep 40% for yourself.

The rest of the shares you have listed as public stock, which the stakeholder can own. Should the business expand, you may dilute the original stakeholders investment to free up public stock. The 30% percent stake in the business will just be a security.

You will need to have a legal contract between the two of you covering any shortfall or liabilities should the business for close.

 

[acidrain]

Not sure how badly you need the money but if the idea of the investor is to receive his capital back + % interest + 51% stake in the business I would certainly not go through with that deal.

Also if he is a silent partner, and you are the one doing all the heavy lifting, I'd try push to maintain a 51% share so you don't get sidestepped further down the line. People and their priorities change and whilst he may be a good friend now, it might not be the same 5 years later on. If he is unwilling to accept a minority share then, and this is not a very good position but beats handing over majority, opt for 50/50 share and have resolutions in place in the event of deadlocks.

 

[Swa]

Share in the business doesn't need to be the same as share in the profit. I wouldn't let anyone who isn't active in the business have more than half the say.