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Investors Related Questions

  • 09-02-2009 12:42pm
    #1
    serdar430
    Closed Accounts Posts: 1 ✭


    I am starting up a new business, i have found a few investors to invest on the idea. I have a few questions needs to be answered:

    1- Is it better to invest as an individual or as a company, why?
    2- Investors will be getting shares from profit(profit after tax). Since it will alreay be taxed, will they still pay tax. Or which way is the best for them to avoid tax.
    3- I am giving investors 5 years ROI. If they still have interest in continuing in the company what would be the road map.
    4- What is the best way of Returning their investment. Pay them periodically, or ?
    6- How do you define the value of their investment in profit share. Such as if they invest 100K how can I define what percentage from profit they will get

    thanks in advance for all responds


Comments

  • #2
    swanvill
    Registered Users, Registered Users 2 Posts: 276 ✭✭swanvill


    Without Prejudice - general information


    1) It is better that they invest personally that way if the business fails they can write this loss against other gains. However if the business succeeds and they have invested as a company then there is a double capital gains tax charge, once when the company sells the shares and 2nd when the investing company is liquidated to distribute the gain to the shareholders.

    2) Yes as it will be dividend income they will be liable to Income Tax, Income levy & PRSI. TBH that is their problem not yours. Income Tax could be avoided by rolling up their profits and distributing as a capital gain at the end of their investment period.

    3) I am not clear what you mean by 5 years ROI, is that you agree to pay them x% and their capital back at the end of year five, similar to a loan or that they get a % of the profits for 5 years and then their capital repaid? As for the roadmap that depends on the investment they put in, if you give them ordinary shares with voting rights, it could be awkward to get them to sell their shareholding, if things go wrong. You could do an ordinary loan, which would just expire at the end of the time or you could give them preference shares which you will pay a fixed % of return and then agree to cancel at an agreed value at the end of 5 years. How you go forward can be a new arrangement with new terms and should not be a problem.
    You should think hard about how you structure their first investment. Warren Buffet charged Harley Motorcycles 15% interest on a $300m dollar loan. So make sure you don't lose control of your company (I presume its not a partnership) and have flexibility on what you pay out of your cashflow and if things go wrong can they recoup their losses against your assets.
    4) At the end of their investment period, if they're happy about that.
    5) In simple terms if they put up a €100 & you put up €100 then you could split it 50/50 but that does not stop you from putting €80k or more through as a salary/pension etc unless prohibited in a shareholders agreement. What % of profits you split is down to what you negotiate with them. You should try and think in interest % terms. BOI offer a €100k at 6.24% so that should be your starting point.

    I would strongly advise figuring out your investment terms and then getting a shareholder agreement drafted by your solicitor and or your accountant. If you require further help please pm me.


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