[Question] Adding a shareholder to our company

[Tums]

Hi All

I need advice. My two sisters and I have decided to start our own business. However one of us has a bad credit record and we are concerned with how it will impact our business in terms of applying for finance. We have decided to not include her in the initial business registration and only add her after she has remedied her credit record. We would however still like her to be a part of the business in the meantime as we need as much start up capital as possible. Please advise how we can have her as a legal partner/shareholder without formally adding her on to our business.

[Greig Whitton]

Please advise how we can have her as a legal partner/shareholder without formally adding her on to our business.

Structure her investment as a convertible note. In other words, she loans her capital which is later converted into shares. The date of the conversion (or the events triggering the conversion - e.g. clearing her credit record) as well as the value of the shares can be specified in the loan agreement. Since she will only become a shareholder in the future (i.e. when her loan is converted into shares), she won't be registered as a shareholder now.

[Tums]

Thank you. We will try that, will she still have rights, in terms of decision making in the day to day running of the business?

[Greig Whitton]

She won't have shareholder voting rights, but she can still have decision-making autonomy as an employee.