We include employees in co-owners – how not to harm yourself?
Sooner or later, any business is faced with the need to change its operational manager. The founding owners eventually move away from solving current issues, giving way to hired, young and daring managers. Often, to create additional motivation, this process is accompanied by the allocation of managers stakes in the company.
From the point of view of increasing the involvement and interest of a manager in a business, this is certainly the right step. However, trusting hired directors to resolve operational issues, it is necessary to retain the ability at any time to reverse the transfer of authority and ownership. After all, no one guarantees that having received a share in the business, the new co-owner will not decide to go to work somewhere else.
We show by a real example how the dependence of ownership of shares on the fulfillment of an employee’s labor function in one of our projects was ensured. Important: inclusion in co-owners was due to participation in management. Accordingly, when an employee is dismissed from the company, there must be grounds for depriving him of his share. The solution to the problem schematically looks like this:
The group of companies is managed at the level of the Management Company (UK), which performs the functions of the sole executive body in the operating sector. Within the framework of the Criminal Code, a plan of owners was implemented on the gradual transfer of management and partial ownership of the business to hired managers.
In the proposed model, the participants in LLC “UK” were hired managers (financial director, commercial director, construction director). This allowed them to make legally significant decisions, feeling like co-owners, and also provided them with financial motivation in the form of dividends distributed at the level of the authorized capital.
Regardless of which of the managers will be appointed as the director of UK Management Company, the most important current decisions are made by the collegial executive body of the Company – the Management Board, which consists of all senior employees. This allows each of them to gain experience in management, and the business owner ensures that decisions are discussed, considered and weighted by all managers. Thus, in the future there is the possibility of choosing from them the most effective and useful for business.
To control the activities of directors of directions and to participate in the adoption of the most important decisions, the Board of Directors has been created exclusively from business owners. The Board of Directors makes a decision on the appointment of members of the Management Board, which allows at any time to remove managers who abuse their position from the management of the company.
This does not deprive the hired manager of a share in the authorized capital. So, without even working for the good of the business, he retains the right to receive dividends …
Therefore, each of the participants in LLC UK was given an option to sell its share in the authorized capital of the Company to itself at a predetermined price.
The option to conclude a share purchase and sale agreement constitutes an irrevocable offer and is drawn up in a notarial form, since a transaction aimed at alienating a share is subject to notarization (paragraph 11 of article 21 of the Law “On LLC” and paragraph 5 of article 429.2. CC RF). The option allows you to unilaterally take a share from a former employee, since the current owner of the share is not required for its implementation (acceptance).
In this case, the exercise of the option was due to the participant losing the status of a member of the board. If for some reason the Board of Directors decides to remove the manager from the collegial management body, LLC UK has the right to redeem the share in its authorized capital.
Another problem is that the Board of Directors in any Company is elected by the general meeting of participants. This means that participating managers can simply exclude owners from the Board of Directors, depriving them of the right to appoint the Management Board.
It can be avoided if the charter of the Criminal Code provides that a decision to change the members of the Board of Directors can only be made unanimously by all members of the Company. Thus, if one is “rebelled”, he will not be able to change the composition of the Board of Directors and affect the right of owners to exclude someone from the Board.
If we are talking about collective conspiracy, then the operating sector (in whose possession the hired directorate is not included) will simply refuse the services of the management company, and managers will be completely removed from the business.
On the one hand, business owners endowed employees with powers and shares in the LLC, increasing their motivation. On the other hand, they created conditions under which motivation exists only under the condition that the top manager works in the company, since ownership of the share is directly related to the performance of managerial functions.