director of an existing business

[Aaina]

Hi guys,

This forum is amazing in answering the queries and a big thank you for that. I am settled in the UK but my dad had recently applied for the entrepreneurship visa which has been granted, Now the next step is to find a business here in the UK! My parents are doctors so my dad is hoping to look for an ultrasound clinic and there are some UK franchisees which help you set up an ultrasound clinic under their franchise name, their is an initial cost to be paid plus a regular cost to be paid every month to the franchise and they will help us set up, do marketing and will also give their software for us to use. My question is -
The cost towards paying the franchise every month - is that considered as an investment?
Secondly, my parents showed a business plan of ultrasound clinic while applying for the visa, do they have to open just that or can they open something else which is completely different to the medical care business?

Will really appreciate a response soon.

Thanks

[marcnath]

First, there is no restriction on what business your Dad does. So he is free to do something else. There may be questions during the extension that he may have to answer, but it is not a disqualification on its own.
Second, I assume the franchise costs will be paid by the company he sets up and not by him personally. He puts the money into the business and the business pays the franchise cost - which is a valid business expense. So I don't see any problems.

[Aaina]

Thanks ever so much, Yes the franchise cost will be paid by the business bank account every month.
If my dad can not claim salary as it's a rule for extension, can he get dividends though as a director.

Thank you for answering my queries, I really appreciate it.

Regards
Aaina

[teddybear79]

if business is in profit and you are paying

1) Franchise cost monthly (from profits its not investment)
2) Monthly Salary (from profits you are allowed to take it but if you take it as show business loss then it will be deducted from investment)

Even if your business is in loss (for tax benefits) you should take salary and then reinvest the sum at the yearend

In short the rules says you should invest 200K out of your pocket.

[marcnath]

Thanks ever so much, Yes the franchise cost will be paid by the business bank account every month.
If my dad can not claim salary as it's a rule for extension, can he get dividends though as a director.

There is no rule that an entrepreneur cannot be paid a salary - not sure where you got that information from.
Remuneration paid to the entrepreneur cannot be counted as investments - whether it is salary, dividends or any other benefits, etc.

@Teddybear79's post was a bit confusing for me but the gist of it is correct.

In short the rules says you should invest 200K out of your pocket.

Once that money is transferred into the business bank account, then what the business does with the money is quite flexible with a few exceptions set out in the guidance.

‘Invested’ or ‘spent’ excludes spending on:
1) your own remuneration,
2) buying the business from a previous owner, where the money ultimately goes to that previous owner (irrespective of whether it is received or held directly or indirectly by that previous owner) rather than into the business you have bought. This applies regardless of whether the money is channelled through the business en route to the previous owner. For example, by means of you or your business purchasing ‘goodwill’ or other assets which were previously part of the business you have bought,
3) putting money into businesses, other than those which you are running as self-employed or as a director, and
4) any spending which is not directly for the purpose of establishing or running your own business or businesses.
And, of course, things like residential property is also excluded.

[Aaina]

Ah Okay- sorry I confused the point 1 and equated it to the fact that he can not pay himself salary. Now, I have understood that he can pay himself salary/dividends just that it won't be counted as an investment..Out of curiosity, what do tier 1 entrepreneurs usually do? Do they pay themselves even though it won't be counted as an investment? Thanks

[Aaina]

Okay now I am really confused, teddybear79 is saying paying franchise cost monthly can't be counted as an investment whereas Marc you are saying it is.. I think it should be counted as it's just like paying rent etc,, Which one is true? Thanks

[marcnath]

Ah Okay- sorry I confused the point 1 and equated it to the fact that he can not pay himself salary. Now, I have understood that he can pay himself salary/dividends just that it won't be counted as an investment..Out of curiosity, what do tier 1 entrepreneurs usually do? Do they pay themselves even though it won't be counted as an investment? Thanks

Yes, entrepreneurs often do take salary - they need to live too.
Obviously, it makes no sense to put in 200K into a company and take some of that as salary - you are just paying tax to HMRC on your own money.
But if you invest 200K, the business is generating revenue, then it does make sense to take part of that as salary.

[marcnath]

Okay now I am really confused, teddybear79 is saying paying franchise cost monthly can't be counted as an investment whereas Marc you are saying it is.. I think it should be counted as it's just like paying rent etc,, Which one is true? Thanks

I think I understand what teddybear79 is trying to say, but it is very confusing the way it is put.
I think what he was trying to say was if, for example, your Dad invests 50K of his own money. Then the business is doing well enough so that 150K can be paid from the revenue generated by the business, then the 150K cannot be counted towards the investment. (but that is true of any spending, not specifically to franchise fees).
Bottom line, don't confuse investment and spending - they are two different things.

[Aaina]

Ah okay, I got it now. Our plan is to put all 200k in the business bank account and then use that money for all the expenses like rent, franchise monthly cost, salaries for the jobs we create (not director salary) etc. If any revenue is generated it will be on top of that..I have also made a note that any director's salary should be from the revenue..thank you so much for your help..

[Aaina]

HI All,

I am wondering if someone can help me. My dad has been granted the tier 1 entrepreneur visa from india and now he is here looking for a business. As we had showed an ultrasound clinic in the business plan, so we are looking for similar sort of a business i.e. Healthcare.

We have a friend who already has been running ultrasound clinic for the last few years and has suggested my dad becomes a co- partner (in the form of a director) with him. So we are thinking that perhaps my dad can be added as a director to the existing business with him and then he can make the 200k investment and create 2 jobs for the purpose of extension as well. My key questions are:

- Can my dad be added as a director of an existing running business. PLease note the other director is a settled person and is not a tier 1 entrepreneur. Just that he is asking my dad to be the partner.
- If this can be done what does it entail, I suppose the first thing would be adding my dad's name as a director to the company and then also adding his name to the existing business bank account after which my dad can transfer 200k to the business bank account for investment
- if my dad invests in this way, then how do the authorities distinguish between the funds of both the partners in which one is not a tier 1 entrepreneur.. or do they really care?

I am posting on his behalf as he is not an expert with forums/computers and I want to make sure that my dad does this the right way. It's his life savings and I really want him to tread carefully so that he gets an extension.

Would be grateful if someone who has followed a similar route can guide me 1-1 as well.

Thank you
Aaina

[marcnath]

Joining an existing business is allowed and is covered well in the guidance - either you or your Dad should read that very basic document.

My key questions are:

- Can my dad be added as a director of an existing running business. PLease note the other director is a settled person and is not a tier 1 entrepreneur. Just that he is asking my dad to be the partner. ==> Yes
- If this can be done what does it entail, I suppose the first thing would be adding my dad's name as a director to the company and then also adding his name to the existing business bank account after which my dad can transfer 200k to the business bank account for investment ==> Yes, adding his name to the account is not related to immigration
- if my dad invests in this way, then how do the authorities distinguish between the funds of both the partners in which one is not a tier 1 entrepreneur.. or do they really care? ==> HO only cares about the investment the T1E holder makes

[Aaina]

Thanks, I just wanted to clarify it because mostly guidance talks about existing business when you are trying to buy it. In this case, as he is just joining and not buying, I thought of just clarifying it..
One last query even though it's off topic- is buying bed and breakfast and running it considered as an investment? Thanks ever so much:)

Regards
Aaina

[marcnath]

Thanks, I just wanted to clarify it because mostly guidance talks about existing business when you are trying to buy it. In this case, as he is just joining and not buying, I thought of just clarifying it..
One last query even though it's off topic- is buying bed and breakfast and running it considered as an investment? Thanks ever so much:)

Regards
Aaina

I don't see why B&B would not be a recognisable investment

[Aaina]

Thank you so much,

[CR001]

Thanks, I just wanted to clarify it because mostly guidance talks about existing business when you are trying to buy it. In this case, as he is just joining and not buying, I thought of just clarifying it..
One last query even though it's off topic- is buying bed and breakfast and running it considered as an investment? Thanks ever so much:)

Regards
Aaina

I don't see why B&B would not be a recognisable investment

How would 'buying the business' and paying the previous owners work then??

[marcnath]

Thanks, I just wanted to clarify it because mostly guidance talks about existing business when you are trying to buy it. In this case, as he is just joining and not buying, I thought of just clarifying it..
One last query even though it's off topic- is buying bed and breakfast and running it considered as an investment? Thanks ever so much:)

Regards
Aaina

I don't see why B&B would not be a recognisable investment

How would 'buying the business' and paying the previous owners work then??

Good point. I took the question to mean if B&B would be an acceptable business to invest in (I don't think it will be considered property management even if rent is the main income source).
The conditions on money not going to previous owners still holds

[zimba]

Thanks, I just wanted to clarify it because mostly guidance talks about existing business when you are trying to buy it. In this case, as he is just joining and not buying, I thought of just clarifying it..
One last query even though it's off topic- is buying bed and breakfast and running it considered as an investment? Thanks ever so much:)

Regards
Aaina

You cannot use your investment to PAY the previous owners or shareholders as a part of a takeover in any shape or form.
Injecting cash to run, expand and manage a business is fine