Bad Leaver provision - Market Value

Shareholders Agreement for Bad Leaver requires sale of shares at nominal value

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An employee of is leaving their employment and is deemed to be a bad leaver under the terms of the Shareholders Agreement, which, so far as I can see, was entered into after the shares were acquired.

The Shareholders Agreement requires the shares to be sold to the mojarity shareholder at nominal value (1p per share), they own 288 shares representing 5% of the share capital.

What I am trying to determine is whether the fact that the price is determined by the Shareholders Agreement overrides the market value (arm's length value rules) in s17 TCGA 1992.

There may be other issues here, but this is my current focus.

Thanks.

Replies (4)

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By Ruddles
23rd Feb 2017 14:23

I would say, without checking case law, that s17 does not apply - no-one is intending to confer gratuitous bounty here.

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Replying to Ruddles:
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By ahills
23rd Feb 2017 14:49

Thanks.

That is the direction I was headed. In terms of "bargain at arms length" it seemed more like "bargain at twisted arm".

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By tom123
23rd Feb 2017 15:40

Out of interest - what did the employee give up in the past in order to obtain this 5% stake.

Have any divs been paid during that time.

I, for one, would be annoyed if I had foregone proper pay or benefits in the past, only to end up with £2.88 when I left the job.

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Replying to tom123:
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By Accountant A
23rd Feb 2017 16:25

Quote:

I, for one, would be annoyed if I had foregone proper pay or benefits in the past, only to end up with £2.88 when I left the job.

I'm sure there was a similar question, about a "forced" sale at nominal value, not too long ago.

It might make some sense if the intention was to induce the employee to remain with the business for a certain period at which point the shares would vest unconditionally.

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