A couple of professors and another friend of theirs set up a company two years ago to provide tuition center services in Indonesia.
Recently, they wanted me to join their company. They offered me a directorship and 20% shareholding.
When I accepted their offer, I received a letter signed by the majority shareholder (who holds 60% stake) detailing that my stake in the company and the scope of my corporate responsibility. The format of the letter is like this:
XXX Company provides tuition services in Indonesia.
The address of the company is XXXYYY.
The shareholders are:
ABC: 60%
DEF: 10%
Me: 20%
GHI: 10%
The duties of Mr "Me" are as follows:
(a), (b), (c)
Signed,
Mr ABC
[Corporate stamp and logo - not photocopied]
[Company Incorporation address and Registration]
The letter seems quite flippant. Is it sufficient to guarantee that I really have a 20% stake in the company?
You are asking all the wrong questions and non of the right questions. Because of this, I suggest you don't know what the fuck you are doing, so you should back out and educate yourself first.
Firstly, you ask whether the letter is sufficent to guarantee your 20% and you ask whether its too flippant. These are the last questions I would have asked. Who gives a fuck? You can hire a lawyer and in fact, the shareholders should all hire a lawyer to do the paperwork. New shares have to be issued, paper work has to be changed and reported to ROC, etc. ALl this is the job of the lawyer. Pay him and let him do the legal paperwork. Coming here and asking whether this letter is sufficient or not is pure stupidity. And all these people who are giving you advice and opinions on the letter and the shareholder paperwork with ACRA and what not, do not get it either.
The real questions you have to ask is:
1) How much money do I have to put in for the 20% stake? In what form is this money put in? eg shareholders loan, straight equity, share purchase, etc. What?
2) How do I get my money back?
3) What is my return or compensation? Is it dividends on my 20%? Is it salary? what is it?
4) What does the balance sheet and P & L look like? They must file annual reports since they are registered in singapore. Why do you need to know this? Because if the company has been losing money, 20% of the losses now belong to you.
5) What is their motivation for selling you 20% and bringing you in as a partner? Are they out of money, cash flow issues?
6) What is the credit of the company? Do they owe money to creditors? Are their assets more then their liabilities? This is important. If the company owes $300,000 to landlords, equipment leasing companies, etc. guess what, you have just volunteered to be on the hook for 20% of the debts too.
7)What is their assets? Goodwill? Computer equipment? what?
8) What is the business plan and mission statement of the company? Are they planning to franchise, expand? what is it? Who are their competitors? Why is their service suprerior or unique to all other tuition centres in Indonesia? Why buy into a company that has no prospects or weak prospects.
There are many many questions to be asked. Its all called DUE FUCKING DILIGENCE. You don't seem to have a grasp of it. BTW, If you have done your due diligence, you will know the letter issued to you by the 60% shareholder is not worth toilet paper. I would not buy any shares in a company and become a director if I did not have a 50 page shareholders agreement that includes first right of refusal clause, borrowing and financing clauses, non competition clauses, etc. U have the worse possible case scenario with a company registered in sinagpore, but doing business in Indonesia. But you don't seem to understand this.
