Most recruitment agencies are registered at Companies House as limited companies, allowing the business owners to hold shares in the company. The number of shares and the rights attached to each share class are agreed upon and allocated accordingly.
Owning shares typically enables business owners to receive dividends, profit distributions made after corporation tax has been paid. However, dividends can only be paid if the company has generated sufficient profits or has retained earnings on its balance sheet.
Maximising the shareholding position of the owners should be considered early in the company’s journey. This ensures that all parties are aligned on the business plan and can be rewarded in the most tax-efficient way. Below are some strategies owners can use to optimise their shareholding structure:
DIFFERENT CLASSES OF SHARES
If a company has multiple shareholders, it is advisable to issue each shareholder a different class of shares, commonly labelled as A, B, C shares, and so on. Each share class can have its own rights, particularly with respect to dividend payments. This structure allows shareholders to receive different dividend amounts at different times, based on the class they hold.
In contrast, if all shareholders hold the same class of shares, dividends must be distributed proportionally according to share ownership, regardless of individual preferences or tax planning considerations.
GIFTING SHARES TO YOUR SPOUSE
One of the advantages of being a shareholder is the ability to gift shares to your spouse. This allows couples to utilise both partners’ tax allowances, making dividend income more tax-efficient. It is recommended that the spouse hold a different class of shares to allow more flexibility in the amount and timing of dividend payments.
SHAREHOLDERS AGREEMENT
A shareholders’ agreement is essential when multiple parties, including spouses, hold shares in a business. This agreement provides clarity and protection for all shareholders. It typically outlines the policy for dividend distribution, defines voting rights, and sets terms for what happens when a shareholder leaves the company, whether as a ‘good’ or ‘bad’ leaver.
Recently, MAYACHI has had numerous conversations with recruitment agency owners whose businesses are structured with multiple directors holding the same class of shares and no shares allocated to their spouses. This setup often results in inefficient tax planning and higher personal tax liabilities due to a lack of strategic advice from their accountants.
MAYACHI provides tailored guidance to recruitment agencies looking to review and restructure their shareholding to maximise take-home remuneration. We also support directors in drafting shareholders’ agreements that protect both the business and its shareholders.
