Children as shareholders

children playing image
 
 
Can a child own shares?

There is no prohibition on a child becoming a member of a company and holding shares. However, the child can reject or set aside the agreement for the shares while still under the age of 18.

In many family-owned companies, shares are allotted to children to provide them with capital assets that can be expected to extend in value as part of the longer-term inheritance and capital gains tax planning.

In many cases, different classes of shares are founded so the child may, as an example, have non-voting shares so that the directors can pay different rates of dividends on the various classes, giving flexibility on how the companies are running.



Such schemes should only be processed with professional tax advice, and great care must be taken to have the share classes set up correctly.

Public companies often provide that children might not hold their shares. Such shares are usually held by parents or grandparents etc., as trustees for the children.

Children aged under 18 years old are legally deemed to be a child, and, unfortunately, this means that they can not open a business bank account. It also means that they will be unable of borrowing money or having a credit card.

 
The requirement to Register.
A person cannot carry on a mail forwarding business without being registered with the appropriate Council. That applies whether the mail forwarding business is conducted alone or in connection with any other business.

Can children be shareholders and receive dividends?

Do children pay tax?

A child’s income is taxed with identical rules and rates as adults, but they’ll receive income, like dividends or bank interest, below the non-public allowance without paying any tax.

  • There are a variety of possible alternatives to a child holding shares directly, which can be considerations:
  • Shares could be held by suitable adults, for example, parents or grandparents.
  • If the business carried out by the person.
  • Slightly differently, the shares could be held within the name of an adult but separated from other shares by adding a designation to the account. A designation could be a brief identifier, often initials and typically not a child’s full name, which helps separate the shareholding from others held by the adult.
  • The name and address of the person to who the postal packages are to be delivered to
  • Copies of originals of two documents of a type approved by the Council to identify the person and verify the address(es) required.
  • A trust may well be founded for the benefit of the child. The shares are then held within the names of the trustees, regulated by the terms of the trust. There are many sorts of trust, with lots of opportunities to tailor provisions to particular circumstances, however, the necessities will be very complex, so it’s a section where you must take professional legal advice.
 
Anyone can hold the position of a director; however, a director must be 16 years old or over and not be excluded from being a director.
 
Pros & Cons
  • Pros

    (When done correctly, creating a small business succession plan helps you think about the business’s long-term future. In addition, planning before helps to reduce the chance for disagreement in the future.)

  • Fail to comply with the provisions of section 75 or.
  • Provide false information in making an application for registration or notifying the Council of any change to the registration particulars held or to a mail forwarding business in relation to details the business needs to keep.
  • Allow the business to be presented with new ideas.
    When it’s the right time? Passing the business onto children is the best of both worlds. They often will have a good understanding of the business and may be able to bring in a fresh approach. Constantly modifying is what is required to have a company that resists the test of time.
  • When you pass the business on to children, you don’t have to worry as much about the stress, disruption, and costs associated with a company sale. You do not have to jump through quite so many hoops to get your plan in place, making it a more enjoyable adventure for everyone.
  • Common values - you and your family are likely to share the same ethos and ideas on how things should be done. This will give you an additional sense of confidence and pride - and a competitive edge for your business.
  • Strong commitment - building a lasting family enterprise means you’re more likely to put in the extra hours and effort needed to make it a success. Your family is more likely to understand that you need to take a more flexible way to your working times.
  • Loyalty - strong personal bonds mean you and your family members are likely to stick together in hard times and show the determination needed for business success.
  • Stability - knowing you’re building for future generations encourages the long-term thinking needed for growth and success.
  • Reduced costs - family members may be more willing to make financial sacrifices for the sake of the business. For example, you accepted less payment than they would get elsewhere to help the company longer-term or defer wages through a cash flow crisis. You may likewise find you don’t need employers’ liability coverage if you only employ close family members.
  • Cons
  • Children don’t feel the plan is fair.

    Sometimes things don’t always go as planned. One child or another might feel cheated by your future plans.
    If one sibling is meant to take over as owner and another as manager, that can flare up stress between the two individuals.
    This is simply part of engaging in thinking about what’s best for the business and what is best for the children.
    To the extent that you can, share your plans for the future with your children to avoid unpleasant surprises or disappointments down the road.
    Another upside to having this conversation is that you might realise you haven’t factored in all the details about who would be best in each role. Hear your children out, but trust your instincts.
  • Allowing emotions to guide decisions can empower those who are not equipped.

    Think deep and hard about whether your children are not just skilled in managing the business but interested in it. It will not be good for them, you, or your company if the interest and ability aren’t there.
    You’ve probably made hard decisions as a business owner in the past, and there’s no way to make this one easier. Consider whether it’s a great fit from all perspectives.
  • It’s not always easy to let go

    If you’re concerned about your ability to step away from the business, this might be an even more significant challenge when someone or a group of people you know so well are at the helm. You might be tempted to get involved more regularly than you should be or be judgemental of your children’s choice.
    Your choice to pass the business on to the children is as much about their ability to carry it on as it is your ability to take a back seat and let them lead.
  • Lack of skills or experience - some family businesses will appoint family members into roles that they do not have the skills or training for. This can negatively affect the business’s success and lead to a stressful working situation.
  • Family conflict can occur in any business, but it’s important to consider that disputes within a family business can become personal as the staff are working with the people closest to them. Bad feelings and jealousy could destabilise the business’ progress and put your family relationships at risk.
  • Favouritism can be objective when promoting staff and only promote the best person for the job, whether they are a relative or not? It is necessary to perform business decisions for business reasons rather than personal ones. This can sometimes be challenging if family members are included.
  • Many family business owners may find it difficult to decide who will be in charge of the business if they were to step down. The officer must determine who can best take the company forward and try to decrease the potential for future disputes- this can be a daunting decision.
 
Conclusion

Making children as shareholders can have advantages but it’s not for everyone and it’s not easy so take the best advice you can before making any changes.

 

If you would like more information, please contact our customer engagement team who would be delighted to assist you further.

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