Restrictions on shares

Restrictions on shares

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Where an employee is offered free shares in his employer's NEW start-up company, and as a part of the deal he will be required to sell the shares if/when he leaves to the remaining employees, is there any tax/legal problems in having this restriction?

Thanks

Colin

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By neileg
11th Sep 2002 13:58

Restriction of ownership
I think that the share ownership could be restricted to employees only in the articles of association. Thus ceasing to be an employee would force the sale of the shares.

Alternatively, you could enter into a shareholders agreement, which would be more flexible but more complicated (and expensive in legal fees).

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By AnonymousUser
07th Sep 2002 00:47

New Shares
My understanding is that the new shares have no taxable benefit as they are in a new company which not having traded have no value. (I assume the employee will pay the nominal share price eg £5 for 5% of a company with a share capital of say 100 £1.00 ordinary shares).

Shareholders often enter into an agreement with respect of their shares, so the enforced sale in itself is not a legal problem. However, if the shares are sold for a profit capital gains tax may well be payable by the employee. The dividends will form part of the employees taxable income seperate from his/her salary.

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