It’s a question we’re asked a lot at Companion Accountancy. So, we’re going to answer honestly and transparently.
Whether you’re a small business owner or contractor, understanding the implications is essential.
Ultimately though, it is a decision that is best arrived at by you and only you as it largely depends on your comfort within your relationship as well as your long-term goals.
Sharing your business with a partner can be a wonderful way to show trust and align interests. But it’s a decision that comes with both opportunities and risks.
Below, we’ve covered the benefits, drawbacks, and legal considerations before taking this step.
Benefits of giving your partner shares
- Financial rewards and motivation
By sharing equity, your partner gains a stake in the company’s success. This can increase their motivation and commitment to helping the business thrive. - Tax efficiency
If your partner is in a lower income tax bracket, you might be able to reduce the overall tax burden by distributing dividends in their name. This strategy can be particularly beneficial for small businesses and contractors seeking to maximise profits. - Succession planning and long-term stability
Giving shares to a partner can help with long-term business continuity. This is particularly true if you plan to step back from daily operations in the future.
Drawbacks to consider
- Loss of control
Even a minority shareholder has rights and influence, which could limit your decision-making autonomy. This can become problematic if disagreements arise. - Financial risk
Dividends paid to a partner reduce the amount of profit you can reinvest in the business. Additionally, should the relationship break down, the value of their shares could be a significant liability. - Complexity in business operations
Adding shareholders increases administrative tasks, including regular reporting and compliance with corporate governance rules.
Legal considerations
- Shareholders’ agreement
A comprehensive shareholders’ agreement can outline roles, decision-making rights, and the process for selling shares. This document can help prevent disputes and provide clarity in case of changes to your relationship. - Impact of divorce
In the event of a divorce, your partner’s shares may be considered marital assets. Depending on jurisdiction, this could lead to forced sales or financial settlements affecting the business. It’s wise to consult legal professionals to draft agreements protecting the company. - Closing the company and capital gains
If the business is eventually sold or closed, your partner may be entitled to a share of the proceeds. Potentially, this could trigger capital gains tax. Planning ahead with advice from your accountant can help manage these liabilities.
Is it the right decision?
The decision to give your partner shares depends on your long-term goals, trust in the relationship, and comfort with sharing control. Consulting both legal and financial experts is essential to understand all implications.
Seek guidance from Companion Accountancy with experience in shareholder structuring and tax planning. They can help you evaluate the financial impact and ensure compliance with tax laws.
If you’re considering this move, we’re here to help you navigate the process. Contact us for expert advice tailored to your business.
