Starting a business is an exciting, often stressful, yet hopefully highly rewarding venture for anyone to undertake. However many young entrepreneurs can feel intimidated by the complex terminology associated with running a StartUp; just what exactly does it mean to be a ‘Shareholder’ anyway? Well Buckworth Solicitors are on hand to help out in our Who’s Who Job Title Jargon Buster!
The role you, as the brainchild of your StartUp, are likely to take. In summary, the director oversees the operations of the whole company, its employees, reputation and practices. Typically, an executive director is considered to be a full time employee within the company. The directors constitute the “board” where decisions are taken collectively.
Also known as an NED, this person is a member of the board and is formally appointed as a director at Companies House. NEDs are genuinely seen as advisors who leave the strategic direction and decision making to the executive directors. NEDs should remember that they owe directors’ duties to the company in the same way as executive directors.
These are non-voting people who are entitled to attend board meetings. They may be advisors or possibly investors. The key point for founders is that a board observer does not have a vote and is not formally appointed as a director.
Selling shares is generally the most tax efficient way of introducing money into your company. To bring on investment, the company issues new shares to investors at a price in excess of their nominal value (called a “premium”). Shares are intangible assets that entitle the holder to a voting right at a meeting of the shareholders, a share of the proceeds of a sale of the assets and a share of the profits of the business (called a “dividend”). A shareholder can also sell his shares.
This phrase doesn’t actually have any legal meaning. However, it is widely used in the startup world to refer to the people who set up a business and generally who are active in running it.
Not the winged-backed halo-wearing creatures but heavenly nonetheless, angel investors are generally high net worth individuals who invest (by buying shares) in startups. In the London market, angel investors are often looking to secure tax relief on their investment (see “SEIS: 5 reasons why you can’t go without it“) and/or provide their experience and contacts to the business.
Employees are paid under the Pay As You Earn System (“PAYE”) via which the employer deducts income tax and national insurance contributions for the employee and pays them to HMRC directly. Employees are directly supervised by the company they work for and their job role and responsibilities are laid out in an employment contract. Employees are also entitled to some protections and privileges in certain circumstances.
In addition to being paid a salary, employees can be offered shares in the company (meaning that they become shareholders). Employees benefit from a tax efficient scheme through which they can acquire shares (called an “EMI Scheme”). For more information, see “How can I issue shares to my employees?”.
Consultants / Contractors
Contractors are people who provide services to the business but are not employees. As such contractors are not paid under PAYE and no tax is withheld when they are paid.
Contractors can include all service providers such as developers, lawyers, accountants, advisors etc.
Employees and Consultants
Often it will be obvious whether a service provider is an employee or contractor. For example, when you hire a law firm to advise you on an investment round, the lawyer is clearly not your employee. However, sometimes it can be harder to decide how to treat a relationship. Is a developer who plans to work 3 days per week for you in developing your smartphone application an employee or contractor? Startups should be careful when deciding whether to treat a worker as an employee or contractor as there are strict rules governing whether a relationship is one of contractor or employment. For further information, please see “Contractor or Employee: the relevant factors”.
If you have any suggestions for other “people-related” terms you find hard to understand, drop Buckworth Solicitors and email and they will be pleased to help you.