Directors Share as Investment

CS Shivi Reddy (COMPANY SECRETARY) (175 Points)
Replied 30 April 2011

Dear Mrunal ji,

In my opinion, since the Company all the expenses are to be borne by the Company... as the rented office is for the Company. Your Partner is wrong in this case. It is not his money that you are putting for the renovation purpose....its simply the companies money..and he is a shareholder in it...and the Company has separate legal entity...i.e. its an artificial legal person...

Shareholders are the owners of the company they are not the creditors, so in my opinion your investment cannot be treated as a loan to the Company.

others views are solicitated

Regards

Shivi

1 Like

SANTOSH SHAH (Company Secretary) (754 Points)
Replied 02 May 2011

Originally posted by : CS Shivi Reddy
	Dear Mrunal ji, In my opinion, since the Company all the expenses are to be borne by the Company... as the rented office is for the Company. Your Partner is wrong in this case. It is not his money that you are putting for the renovation purpose....its simply the companies money..and he is a shareholder in it...and the Company has separate legal entity...i.e. its an artificial legal person... Shareholders are the owners of the company they are not the creditors, so in my opinion your investment cannot be treated as a loan to the Company. others views are solicitated Regards Shivi

Dear Mrunalji

Am too of same opinion as Shivi.

It makes sense when initially before setting up of such firm, you had entered into

such partnership agreement where in setting up of the firm expenses would be only from your end.

The set up of the firm will be done only once.

Currently on shifting your office, the renovation expense is a Business Expenditure which is to be

borne by the Company from Company Funds, and no such fresh investment from your end is required.

The Renovation is for the business and not for your personal use, so company funds should do for the same.

Other views solicted

regards

Santosh Shah

1 Like

Mrunal (Director) (26 Points)
Replied 09 May 2011

Dear Shivi and Santosh,

Thanks for your reply regardi the concerns.

However my partner has still different ideas. He argues that since it was mutually agreed that he will not be involved in the investment part of the company and having such renovation work required for the new premises, no company's money can be used because indirectly he will have to bear the loss in profit at the end of the year for the said expenses.

for eg: current renovation cost is Rs 5 Lakhs. If that is used for the renovation (as it is investment and not the running cost of the company) his 20% share will be affected at the end of current year. I.E. his divident for that renovation cost which comes to Rs 1 Lakh is indirectly used as investment purpose to which he had said very earlier that he will act as working partner and not investment partner.

What to do?

SANTOSH SHAH (Company Secretary) (754 Points)
Replied 09 May 2011

Originally posted by : Mrunal
	Dear Shivi and Santosh, Thanks for your reply regardi the concerns. However my partner has still different ideas. He argues that since it was mutually agreed that he will not be involved in the investment part of the company and having such renovation work required for the new premises, no company's money can be used because indirectly he will have to bear the loss in profit at the end of the year for the said expenses. for eg: current renovation cost is Rs 5 Lakhs. If that is used for the renovation (as it is investment and not the running cost of the company) his 20% share will be affected at the end of current year. I.E. his divident for that renovation cost which comes to Rs 1 Lakh is indirectly used as investment purpose to which he had said very earlier that he will act as working partner and not investment partner. What to do?

Hello Mr.Mrunal,

A company would have to undergo ups & downs and hence the expenditures are incurred.

The Profit would arrive only at later stage, after earning income & clearing all costs & expenses.

And on that profit the sharing would take place.

But your partner is only concerned about his share. How is his share affected ??

You had earlier stated that company has enough funds, then what these funds would be used for??

I dont see any reason for investment from your end, nor it is investment from his end too.

Its company funds. Renovation cost is a capital expenditure.

If you go by what your partner says, then he would not allow you for depreciation on the assets

as that would reduce his profits. Isn't it . :-)

If he is not agreeing then bring in new partner with new investment.

Other views solicited.

regards

Santosh Shah

1 Like

Jyotika (study study n study) (147 Points)
Replied 09 May 2011

In this way the company should not spend a single penny as this will reduce his profits, then there should be no expenditure only income..............renovation is business expenditure and should be borne by the company so as to run company more effectively........................above all majority prevails then whats the matter

1 Like

Mrunal (Director) (26 Points)
Replied 11 May 2011

Dear Shivi and Santosh,

Pleas guide me with following queries.

1) Ideally what share should my partner be given as he is not at all involved in Investment. He is just a working partner. (A) Should he be given shares (B) Should he be given Directorship (C) Only on salary base.

I have offered him 20% share in the profit. But now I think I might have made a mistake by also giving him 20% shares, Added as Director plus paying him Salary on monthly basis.

2) My new office in going to through renovation. Renovation includes Colouring as per company standards, Some Civil Work, Electric and Carpentery work.

(A) Is Renovation is terms as Capital Expenditure or Running Expenditure.

My CA will keep most of the expenditures like Colouring, Carperntery work etc as asset to claim depriciation. That means this this will be termed as investment? Hence my partner will argue about the same point.?

What should I do.

I want to take my 20% shares back and just wanna employ him as advisor of the firm rather paying salary nor on directorship. What is the best way out?

SANTOSH SHAH (Company Secretary) (754 Points)
Replied 12 May 2011

Originally posted by : Mrunal
	Dear Shivi and Santosh, Pleas guide me with following queries. 1) Ideally what share should my partner be given as he is not at all involved in Investment. He is just a working partner. (A) Should he be given shares (B) Should he be given Directorship (C) Only on salary base. I have offered him 20% share in the profit. But now I think I might have made a mistake by also giving him 20% shares, Added as Director plus paying him Salary on monthly basis. 2) My new office in going to through renovation. Renovation includes Colouring as per company standards, Some Civil Work, Electric and Carpentery work. (A) Is Renovation is terms as Capital Expenditure or Running Expenditure. My CA will keep most of the expenditures like Colouring, Carperntery work etc as asset to claim depriciation. That means this this will be termed as investment? Hence my partner will argue about the same point.? What should I do. I want to take my 20% shares back and just wanna employ him as advisor of the firm rather paying salary nor on directorship. What is the best way out?

Hello Mr.Mrunal

This is just my view. You can take a call on what seems right for you.

1. Though your partner may not be making any investment in terms of money, but you need to see

if he is making good investment in terms of ideas & to what extent is the business successful.

What is the level of contribution from your partner to the business and the value addition made.

If Business - Revenue & Profit is above expectations

Retain him as a Director & 20 % Profit with Shares .

Directors are entitled to salary, fees, commission, etc.

If Business - Revenue & Profit is below expectations

Appoint him just as Advisor with Advisory Fees.

Giving Shares or not is your option.

If your partner is good enough to take business to a higher level and is already successful in last 2 yrs, then retain him as Director.

2. Renovation can be both capital & revenue expenditure, depends on nature of activity.

Renovation would be a capital expenditure if there is any purchase of assets say furniture.

Such expenditure can be capitalised. But the nature of activity mentioned from your end does not include

any purchase of assets which can be sold later so is of revenue expenditure.

Other contrary views / Experts views solicited

regards

Santosh Shah

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