My client has issued shares, some for cash and some in exchange for an assignment of IP. They were all issued on the same date and the cash consideration was £175 per share. There is no contract for the IP. Do I account for all the shares at the same value and account for the IP as an asset at that value?
Replies (27)
Please login or register to join the discussion.
So shares have been issued in exchange for shares but that is not evidenced by a contract?! The company has no evidence that it owns the IP? I think ownership needs to be established before it goes anywhere near the balance sheet.
An employee has been awarded shares in return for transfer of IP and some cash. You need to establish (a) the value of the IP and (b) the value of the shares issued/transferred. And thus whether there is any difference between (b) and (a)+cash.
Or are you saying that the terms of the contract are such that any IP created by the employee whilst in employment of the employer automatically belongs to the employer? In which case, does the contract provide that the employee will be remunerated for the creation of said IP?
As Wilson Philips says, you need to put a value to the IP. I take it the IP rights have not been secured. This makes valuing the IP a bit trickier.
There have been numerous cases of founders of tech businesses setting up a company and then selling their own code, domain names, web dev work to the company at, er, inflated prices, in order to book a large director loan.
Returning to the valuation, could you tell us some more about the nature of this IP?
I no longer think that the value of the IP is relevant. The contract states that it already belongs to the employer. The employee appears simply to have been given shares in return for their services. They might be valued at £175, they might be worth something else.
Possibly. But ....
There is a contract for transfer of IP from this person to the company. In exchange for handing over that IP he got employed. That's my understanding from the exchange following the OP.
Does such act of employment constitute "consideration" for purposes of contract law? If not, the contract is not valid (which suggests shares act, in this case, as the price the company paid for the IP being transferred).
IANAL
But the questioner says that there is no contract for transfer of IP. The employment contract simply says, as is common, that any IP created by the employee is the property of the company.
There are two IPs - that created by the (now) employee prior to his employment and that which he will be creating in the future as an employee.
The latter, as you rightly point out, is the property of the company. But the latter IP is not the problem.
When the OP says there is no contract, she presumably means that there is no written contract.
Maybe we need clarity as to whether the original IP was actually gifted to the company.
I'm not sure that there are two lots of IP, although it's always possible. Questioner will need to clarify.
I'd be pretty sure there are not. Questioner simply needs to read more clearly - and check whether an election under s431 was made, as that determines the value to use.
Shouldn't the employer (have) provide(d) the employee with relevant info?
P11D? Surely it either falls under s 62 or it falls under ERS, and in neither case is anything touching a P11D.
Value the shares, agree the value with HMRC, make the appropriate share return (or payroll it, if appropraite) and debit wages and salaries and creditshare capital/share premium. The IP is a burgundy bloater.
Value the shares, agree the value with HMRC, make the appropriate share return (or payroll it, if appropraite) and debit wages and salaries and creditshare capital/share premium.
You're speaking as for the employer. And the "make the appropriate return" is my point. Most employers wouldn't want employees making conflicting returns and so would tell the employee the figures. That's my experience anyway.
The inference I was aiming for was that the OP should get the client to engage somebody to deal with this that knows what they're doing.
The
"but we were paying for IP"
argument sounds like nonsense. If the IP does not exist, what they are paying for is the employee's work in creating the IP. It's just part of their remuneration for doing the work, not a separate payment for IP.
Perhaps not a perfect analogy but similar to the brickie who helps to build a house for his builder employer and then 'transfers' the completed walls to his employer expecting an additional payment. Nonsensical.
It depends on the external investors and their risk profile. In many cases external investors are prepared to pay a bit more than the market value of the shares in hope/expectation that the rewards will justify the price paid. HMRC would certainly look at the price paid when considering market value but, on its own, is unlikely to be conclusive.
S421 imports the TCGA definition of market value. Discussions we may have had around the meaning of that term are therefore also imported into this thread.
My apologies. I've been thinking throughout that you acted for the employee, although rereading the question it's clear that I was wrong.
I'm not now sure what the question is.