[Advice Needed] Shareholding in a Pte Ltd company

[Macroeconomics101]

How is a Singapore registered company going to run a tuition centre in Indonesia ?

The company liaises directly with schools in Indonesia to host workshops, training programmes, enrichment activities, and curriculum development projects.

 

[Macroeconomics101]

Did you ask yourself the fundamental question of all and that is WHY they need your equity?

The company operates in a foreign land and as far as you are concerned, finances are nothing more than a black hole. Unless you make it your business to audit the cash flow independently on a regular basis, you have no choice but to naively trust what you are given with no way of verifying the accuracy or the validity of the accounts.

And we have not even started to dissect your exit strategy. Unless the goal is to take the company public, how are you going to cash out and take profit should the company actually make a pile of money?

These sorts of deals may be OK between trusted friends that start a business from scratch because they realise they compliment each others skills eg Microsoft and Apple. However when done in a manner which you have just described, I smell a rat.

Leongsam,

I was not asked to invest any money in the company. I have worked as a staff in a related company also set up by the same chaps for some years, and they have decided that they could use my expertise and credentials in their Indonesia outreach programme.

They have granted me a directorship and 20% stake in the company. In return, I have to plough back 50% of my earnings / income / commission into the company's piggybank. Ordinary staff members continue to receive their regular salary and CPF contributions. I will only draw a director's pay which is determined by the majority shareholder.

 

[Leongsam]

Leongsam,

I was not asked to invest any money in the company. I have worked as a staff in a related company also set up by the same chaps for some years, and they have decided that they could use my expertise and credentials in their Indonesia outreach programme.

They have granted me a directorship and 20% stake in the company. In return, I have to plough back 50% of my earnings / income / commission into the company's piggybank. Ordinary staff members continue to receive their regular salary and CPF contributions. I will only draw a director's pay which is determined by the majority shareholder.

With that arrangement, although you're not risking any money upfront, you are still risking your future earnings which can be substantial or minimal depending upon how much you're being paid in the first place.

The question remains regarding exactly how the 20% stake is going to benefit you in the long term vs drawing your full regular income. A bird in hand is always worth 2 in the bush especially when you don't know exactly whether there are any birds in the bush in the first place.

In 5 years time are you hoping for a windfall that far exceeds 50% of the money you would have earned as a regular employee?

 

[yahoo55]

Leongsam,

I was not asked to invest any money in the company. I have worked as a staff in a related company also set up by the same chaps for some years, and they have decided that they could use my expertise and credentials in their Indonesia outreach programme.

They have granted me a directorship and 20% stake in the company. In return, I have to plough back 50% of my earnings / income / commission into the company's piggybank. Ordinary staff members continue to receive their regular salary and CPF contributions. I will only draw a director's pay which is determined by the majority shareholder.

In a Sinkie Pte Ltd company, the majority shareholder has absolute power to decide on almost everything, including salaries, director fees and dividends. You might end up being a slave to the company and working for peanuts. The pertinent question to ask is do you really trust the majority shareholder?

 

[Brightkid]

I had seen so many partnerships failed that my motto is: Never partner with friends unless you want them as your enemy sooner or later. Even family members and childhood friends cannot be entrusted. No $ and capability, don't do it.

In fact, my motto is always : scrutinise, ask and clarify in writing, check and recheck.....BEFORE signing any contracts/agreement. Contracts are always signed in good/happy times nothing really matters. But when shit hits fan, everyone will take out contract to check the crosses and dots via their Lawyers!

As boss highlighted (note I am speaking based on facts, not porlumpar boss) why does the other shareholders dilute their shares to gain your 'expertise' when the company is already running? Is always far cheaper to pay someone a salary for the expertise and fire him if subsequently can find others to do job better than the share profits Long term.

For only 20% stake as a minor shareholder, u have practically no say in decision whatsoever unless you have support in board room. U are in fact just offering to work for peanuts, if any, but with all directorship responsibility that comes along with it, even if you are just a sleeping (inactive) partner.

Since you had already signed the agreement, your nightmare (touchwood, hope not) just started. Good luck.

 

[Macroeconomics101]

In a Sinkie Pte Ltd company, the majority shareholder has absolute power to decide on almost everything, including salaries, director fees and dividends. You might end up being a slave to the company and working for peanuts. The pertinent question to ask is do you really trust the majority shareholder?

In our case, the majority shareholder is actually not the primary decision maker. He defers to one of the minority shareholders whom he trusts. This minority shareholder is the one coordinating the whole business operation, and negotiating the worth of the contracts the company signs.

 

[Macroeconomics101]

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.
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.

I did not buy shares in the company upfront. I accepted a 20% stake in exchange for my agreement to part with 50% of all future earnings and commissions that I normally would receive if I am being employed by the company as a regular staff.

You are absolutely correct on the due diligence part. I have not seen the company's P&L, balance sheet, or anything. I don't even know how much revenue came in last year.

 

[Leongsam]

In our case, the majority shareholder is actually not the primary decision maker. He defers to one of the minority shareholders whom he trusts. This minority shareholder is the one coordinating the whole business operation, and negotiating the worth of the contracts the company signs.

That's regarding operational issues. However when it comes to money, no major shareholder would forego the power that a 60% shareholding can wield at a board meeting.

Ultimately if you're comfortable with the arrangement then who are we to question your decisions.

however I still think that you're worrying about a minor issue while ignoring matters that will have a far greater impact on the outcome of your business venture.

 

[Macroeconomics101]

however I still think that you're worrying about a minor issue while ignoring matters that will have a far greater impact on the outcome of your business venture.

I understand this point. Thanks.

Also thanks to papsmearer for detailing out all the things I should be focussing on.

 

[Rumpole]

Amazingly, Claire, the self-proclaimed corporate lawyer, has failed to come in and correct some of the posts herein which show a lack of understanding of a very basic and fundamental principle of company law - separate legal personality.

[video=youtube;fVrC5w_9oOo]https://www.youtube.com/watch?v=fVrC5w_9oOo[/video]

 

[yinyang]

...schools in Indonesia to host workshops, training programmes, enrichment activities, and curriculum development projects.

Watch it, if you (as a non-tax Indonesia tax resident) are remunerated by Indonesia schools or local Indonesia sources -you risk getting hit with 20% witholding tax. Can even extend to reimbursement of travel expenses etc. Same principle holds in reverse, as taxman here wants a slice of the cake.

https://www.kpmg.com/Global/en/serv...entre/Documents/CountryProfiles/Indonesia.pdf

...not seen the company's P&L, balance sheet, or anything. I don't even know how much revenue came in last year.

Touche. This is absolute minimum, for you to do your sums right.
Public information ACRA may not help you, as some companies "camouflage" as exempt private company (under certain conditions) -without having to lodge financial results.
So you must access audited financials, not just the management results (can be "stewed")

 

[Narong Wongwan]

i suggest you check with a lawyer better than asking most of the half-baked professionals here.:p

look who's talking? mr ask everybody about everything here

Dumbfuck calls other half baked.
I wonder what is he.....can't even make it as a taxi driver.
Oh I forgot....now his online persona already morphed into a aussieland migrant to be.....a ozland expert....triple PTUI! to resident loser

 

[Leongsam]

Dumbfuck calls other half baked.
I wonder what is he.....can't even make it as a taxi driver.
Oh I forgot....now his online persona already morphed into a aussieland migrant to be.....a ozland expert....triple PTUI! to resident loser

He can't beat me I've morphed from pauper to multimillionaire back to pauper and changed ethnicity twice and gender once. I've also switched political affiliation so many times I've lost track of who I'm supposed to be supporting.

 

[Papsmearer]

I did not buy shares in the company upfront. I accepted a 20% stake in exchange for my agreement to part with 50% of all future earnings and commissions that I normally would receive if I am being employed by the company as a regular staff.

You are absolutely correct on the due diligence part. I have not seen the company's P&L, balance sheet, or anything. I don't even know how much revenue came in last year.

At the very crux of the question is this. "Am I better off keeping all of the commissions and earnings for myself or better off giving up half of it for 20% of the company". If you answer that its better off to give up half of earnings in exchange for 20%, then you have to ask yourself why? Why is it better? By what means are you using to determine that this is better? Only you know your personal situation.

Its entirely possible that the 60% shareholder already has plans to hire a new staff for the exact job that you will do, and has already projected the future earnings and commissions that the new staff will earn. He might have thought that this was too expensive and came up with this scheme to roped you in for 20% of the company. Hence he has added 50% of your income to his bottom line, and he has control over what you can get out of the 20%. Good for him, not good for you.

On the other hand, if you are buying your job security for 20% of the company by giving up 50% of your earnings, is it worth it to you? If you worked for someone else, can you earn the same income? Will you have the same job stability? If not, then this is just an assured job position for a reduction in wages. But if this is the case, then you should have an employment agreement. Something along the line that if the company forces you to leave, then you get back X amount of the money you put in. In other words, you get your shareholders money out.

Because lets face it, you are actually doing cash injections into the company every month through giving them 50% of your pay. Its almost like an instalment plan where you are given 20% of the company up front for no money, but you pay for the 20% through your monthly 50% of your compensation. At some point, you should negotiate when this will stop. Otherwise, your financial contribution can surpass even all the other shareholders combined. eg. Lets say every month, you earn $20,000 in total compensation. You give $10,000 to the company as part of the 50% agreement that you have. If you work for 2 years, you would have injected $240,000 into the company. That makes the company's theoretical worth to be $1.2 million. Is this a $1.2 million company? How much did the other shareholders invest? If they started the company with only $150,000 of their own money, then you have put in $240,000, shouldn't you be the majority shareholder instead? Its better for you to have an agreement where you say you will give them 50% of yoir compensation for lets say 3 years, and after that, all 100% of the earnings belong to you. That way, you put a valuation on your 20% stake and on the value of the company. Or in another case, say you will put in 50% until you reach say $100,000, and then you stop. Otherwise, it does not look good.

 

[Brightkid]

Papmearer, very good suggestion. TS could be the major shareholder, or even buy over the company over 2 years or so, without the cap.

I had similar advise for a Friend not too Long ago. Similar situation. The contract was drafted to contribute a set amount computed to10% equity stake of company being his share of contribution, via monthly contribution until the 10% stake is fully paid by him within, say 24 months. His salary remained at market rate every month as an employee status. This separate and does not complicate the salary portion for need to revise salary which can be a huge dispute when time comes. Works well too.

 

[wikiphile]

In our case, the majority shareholder is actually not the primary decision maker. He defers to one of the minority shareholders whom he trusts. This minority shareholder is the one coordinating the whole business operation, and negotiating the worth of the contracts the company signs.

Not trying to rain on your parade, the majority shareholder is deferring to one of the minority shareholder for the moment. The dynamics may change in the future and not even to your advantage. Some time back during one of my ICTs, a couple of us was talking on pooling money together to start a venture. At that time i did not had much in cash and i would be a very minor shareholder (5% at best).

Needless to say i declined even though my 'friends' were encouraging me to join in. The venture came to naught, my money and i did not part ways.

 

[Leongsam]

It's threads such as this one that give me the incentive to keep this forum going.

I've always envisaged the forum as a place where people from all walks of life with opinions and political leanings as diverse as they come getting together to share wisdom for the benefit of all.

I wanted it to be the antithesis of what conformist, narrow minded Singapore is. Loonies, manic depressives, genius, dunces, pimps, rude, obnoxious... all are welcome.

 

[frenchbriefs]

Did you ask yourself the fundamental question of all and that is WHY they need your equity?

No businessman in his right mind is going to voluntarily dilute his share in a business venture that is going well.

If you are satisfied that you have the answer to this question, it does not mean your troubles are over. It means that they are just beginning.

The company operates in a foreign land and as far as you are concerned, finances are nothing more than a black hole. Unless you make it your business to audit the cash flow independently on a regular basis, you have no choice but to naively trust what you are given with no way of verifying the accuracy or the validity of the accounts.

And we have not even started to dissect your exit strategy. Unless the goal is to take the company public, how are you going to cash out and take profit should the company actually make a pile of money?

The legal document to validate your 20% stake is honestly the least of your problems. Even if it was signed, sealed and validated by the highest court of the land, it means nothing because what you have done is given a free pass for the 60% stake holder to use your money as if it was his.

Not a very wise move in my books.

These sorts of deals may be OK between trusted friends that start a business from scratch because they realise they compliment each others skills eg Microsoft and Apple. However when done in a manner which you have just described, I smell a rat.

there is no catch,he is being offered twenty percent shares in a tuition company that has jackshit revenues in return for his presidential duties.if hes lucky at all the enterprise might start showing a tiny profit in the third or fourth year.he would be lucky if he even gets paid in bowls of mee soto ayam.

 

[Papsmearer]

Papmearer, very good suggestion. TS could be the major shareholder, or even buy over the company over 2 years or so, without the cap.

I had similar advise for a Friend not too Long ago. Similar situation. The contract was drafted to contribute a set amount computed to10% equity stake of company being his share of contribution, via monthly contribution until the 10% stake is fully paid by him within, say 24 months. His salary remained at market rate every month as an employee status. This separate and does not complicate the salary portion for need to revise salary which can be a huge dispute when time comes. Works well too.

Yes, this is the correct way to to it. But he has to look at the preferably audited P & L and Balance sheet of the company to arrive at the equity valuation in the first place. And he has not done this.

 

[Papsmearer]

It's threads such as this one that give me the incentive to keep this forum going.

I've always envisaged the forum as a place where people from all walks of life with opinions and political leanings as diverse as they come getting together to share wisdom for the benefit of all.

I wanted it to be the antithesis of what conformist, narrow minded Singapore is. Loonies, manic depressives, genius, dunces, pimps, rude, obnoxious... all are welcome.

If this is what you envisage. Then you have to kick out all the PAP balls lickers and cock suckers in this forum. They are so narrow minded, devoid of ideas, only spouting the party line, they contribute nothing. that is why you don't see John Tan and all the other PAP fucks in this thread, do you?