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Shareholding anonymity?

Can my client have his cake and eat it?

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Client is setting up a new company and will be looking for third party investment under SEIS/EIS. An MD has been appointed, who currently owns all 100 issued shares but there's no real value in them as yet. 

Ultimately, my client will own up to 50% of the company, so the obvious thing would be for him to take his shares now. For commercial reasons, he's adamant that he doesn't want to be seen to be a shareholder until later.  He considered using an offshore company but didn't like the tax avoidance associations (and costs) of that - the desire for anonymity isn't about tax.   

Share options would trigger a big income tax liability on exercise if the company succeeds.  Someone suggested to him that he might be granted share options as a consultant and thereby pay income tax on the value at grant date, with CGT on exercise.  I'm not aware that he has an existing self employed business and the argument for him being a de facto director seems strong - everything to do with this venture seems to have been at his behest, at least until the MD was appointed (by my client).

It also seems a risky route for the company to take with prospective investors lined up and a possible employment status/PAYE issue ahead.

I've no experience of options being used in such a scenario and how HMRC look to counter it, but I expect they would.

Any thoughts or ideas as to how he might somehow reserve an entitlement to shares without triggering a potentially high income tax charge and while remaining anonymous for now - or indeed whether that presents other, non-tax problems - would be appreciated.         

Replies (16)

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By Truthsayer
25th Nov 2020 15:21

I would not be asking complex legal questions on a forum such as this. This is a question about more law rather about accountancy, and is something appropriate for a specialist solicitor.

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By ireallyshouldknowthisbut
25th Nov 2020 15:34

You might like to remind yourself what a PSC is.

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Replying to ireallyshouldknowthisbut:
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By dwgw
25th Nov 2020 16:07

Why? Any services he's providing aren't being provided via a company and he isn't a shareholder, director or employee of the company to whom he's providing any services.

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Replying to dwgw:
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By Tax Dragon
25th Nov 2020 16:13

Not personal service company :)
Some basic guidance for you: https://www.gov.uk/guidance/people-with-significant-control-pscs

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Replying to dwgw:
By ireallyshouldknowthisbut
25th Nov 2020 16:17

eh? you said he was going to be a 50% shareholder, and was trying to hide this fact.

I therefore assume he must be a PSC for the company in which he is trying to hide his shareholding.

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Replying to ireallyshouldknowthisbut:
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By dwgw
25th Nov 2020 17:05

My mistake - just been talking IR35 elsewhere and had it in my brain.

Point taken but it's a question of timing - he's happy to break cover, as it were, and have a shareholding in future.

He isn't a shareholder and has no voting rights now and he would say - and I have no basis to tell him he's wrong - that he has no right to appoint a director or remove the MD. From what he's told me, he knew or discovered the individual, thought he was the right person for this project and it was that person who then set up the company and made himself MD.

Does my client exert, or have the right to exert, significant influence or control over the company now? He says not, that's the MD's role and my client is just working with the company to attract investors and for that he will, or could be, rewarded with share options.

If that's the case then I don't see how that makes him a PSC now.

Sorry if my post was misleading.

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Replying to dwgw:
By ireallyshouldknowthisbut
25th Nov 2020 17:35

Misleading? You seem to have changed half the relevant facts to suit a new problem you were not aware of.

Bit like my ex-client who claims to be on 100% furlough whilst working 50 hours a week when it came to his home office claim. Yup ex-client.

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Replying to ireallyshouldknowthisbut:
RLI
By lionofludesch
25th Nov 2020 18:08

ireallyshouldknowthisbut wrote:

You might like to remind yourself what a PSC is.

Ah - the curse of the acronym.

I saw SEIS and my thoughts turned to SEISS.

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By Paul Crowley
25th Nov 2020 15:50

What is the 'client' hiding. Is he banned or breaking rules?

'Commercial reasons' is Bollox

Your client, if it is the company has a single director and shareholder being MD

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Replying to Paul Crowley:
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By dwgw
25th Nov 2020 16:05

No, not banned and not breaking rules and not bollox either but thanks for the suggestion - see response to the following post.

My client is not the company, it's someone who's been involved in setting it up.

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By paul.benny
25th Nov 2020 15:52

Would those commercial considerations involve trying to circumvent a restrictive covenant having left an employment contract? Or even being in competition with the current employer?

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Replying to paul.benny:
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By dwgw
25th Nov 2020 16:03

paul.benny wrote:

Would those commercial considerations involve trying to circumvent a restrictive covenant having left an employment contract? Or even being in competition with the current employer?


No, it's nothing to do with any employment. He knows the potential investors via a client of his who might - emphasise might - regard this as competition.
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Replying to paul.benny:
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By Paul Crowley
25th Nov 2020 16:16

That was my guess. Could even be covenants following a sale or disposal
But is definitely hiding from client?
PSC
Why is client able to appoint directors?

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By Justin Bryant
25th Nov 2020 16:47

Tony Blair's lawyers figured out a (complex) way for him to stay an anonymous owner of a UK legal entity if you Google it (clearly it didn't work very well in his case).

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By WhichTyler
25th Nov 2020 17:50

Eh? Does he have an agreement with the current shareholder that he will buy his shares in the future?

Is he planning to buy in as part of the SEIS/EIS round? Or later?

Are the third party investors aware that he will be diluting them?

Sounds like they could be a shadow director, on the basis of 'my client is setting up a company' if nothing else...

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Replying to WhichTyler:
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By WhichTyler
25th Nov 2020 17:58

Your client isn't Dicky Roper is he? Does the name Tradepass ring a bell?

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