Option to buy shares

Option for non-employee to buy shares

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I have a client who has a ltd company. It was agreed that client would provide advice over a two year period, in exchange for share options which could be exercised after the 2 year period. 

Agreement is between the start up and my client's ltd company. 

Any pointers within the vast volumes of guidance / legislation on share options, specifically relating to non-employee / non directors receiving share options / exercising share options as a ltd company? 

Thanks for any help

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By paul.benny
24th Feb 2024 16:36

Oh dear.

The question blurs the distinction between Client and Client Company - which I'm guessing reflects the agreement. I'd start by clarifying, if possible who is providing advice and receiving the option.

The problem is that Client has provided services for reward so has taxable income without any cash to pay the tax. And if Client is VAT registered, they also need to account for output tax on said income.

Although FWIW, I think Client has effectively provided services for free as the options are worthless: should Client take up the options, will s/he ever be able to realise any value from their minority shareholding in a private company? (Lots of assumptions there, in the absence of actual facts and there may be an exit path that makes the shares/options valuable).

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Replying to paul.benny:
By FactChecker
25th Feb 2024 12:29

"will s/he ever be able to realise any value from their minority shareholding in a private company?" ... you might be surprised at how often you can, even if in odd circumstances.

A little over 30 years ago, a division of NatWest acquired a small company where I was an employee and had recently been appointed a Director (along with a small number of share options). Having bought the issued shares, they decided to tidy things up by cancelling the options ... and sent some junior 'clipboard' minion to see each person who held any options and request their signature agreeing to the cancellation. Others were happily signing ('never expected them to be worth anything'), but I thought I'd try refusing - just to see what would happen.
Initially minion tried changing the request to a demand and then threatening me with implausible implications, which told me I was on to something. So I made an offer for him to relay back to his masters: "I'll sign only *after* receiving £10k as a goodwill gesture".
He was aghast (and nearly apoplectic) but had no choice other than to relay my message ... which, to his fury and my unexpected pleasure, was immediately accepted. So I paid off a substantial portion of the remains of my mortgage!
Happy days.

But, my rambling aside, you make some salient points.

Thanks (3)
Replying to FactChecker:
By paul.benny
25th Feb 2024 14:09

Well done you - I enjoyed the anecdote and admire your chutzpah .

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By David Ex
25th Feb 2024 10:38

Haven’t seen it for a while but it used to be quite a regular question.


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