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Correct treatment for Nil paid Growth Shares?

How to correctly account for Nil paid growth shares.

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Hi, I am hoping someone call help me with the following query:

I have a client who has issued 100,000 nil paid growth shares to a number of employees and consultants. The growth share subscription agreement states that the subscription price is £2 / share, but not payable until an exit event (or forfiture). An exit event being defined as a sale of the business or liquidation.

A valuation was undertaken of the growth shares and they were deemed to be 90p per share. The subscription price of £2 is above the market value for the Ordinary shares by abount 20%.

On exit the growth shares provide for a share of the proceeds if a sale price is achieved greater than £3 / share.

The terms of the subscription agreement are that:

25% of the subscribed shares vest immediatey in the rights to share on the proceeds on exit, with the remaining 75% vesting of the next 3 years (25% per year).

My questions are:

1. Do you account for the initial issue of shares as:

Cr - Share capital/premium - £2 x 100,000 = £200,000 (split between nominal and premium)

Dr - Unpaid Share Capital - £200,00

2. Would you classify the unpaid share capital as a non-current asset if a sale was not expected in next 12 months.

3. Does any adjustment need to made in respect of share-based transaction? The employees/consultants own the shares now and the vesting rights only relate to how much they can participate in receiving the future proceed. There is no further obligation from the company.

Many thanks in advance.

AJ

 

Replies (2)

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By Paul Crowley
04th Sep 2021 18:44

Your client took advice on this.
Pass it back to the advisor.
How much did advisor charge?

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By paul.benny
05th Sep 2021 09:01

Whilst I appreciate Paul's response, the people who devise these sort of schemes tend not to understand (nor care) about the accounting.

To answer your questions
1 Yes
2 Yes
3 Accounting for share-based payments can be complex requiring a detailed understanding of the scheme rules, and in this case the subscription terms for the shares. It's not the sort of expertise that I would give away for free.

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