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Shares given to an employee at under value

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We are acting for a new business start up.  Shares have been subscribed for based on a valuation of £4,000,000 of the business.

If an employee is to be issued with 5% shares and not pay for them, will the Shares Valuation division agree to a discount of the £4,000,000 valuation for a minority interest stake or ignore this on the basis that shareholders have invested based on the full valuation for shareholderings of less than 5%.

The company is yet to trade so arguably the shares are not worth anything but a market value has been established based on subscriptions of at least 10 other shareholders.

Would appreciate any thoughts.

 

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By Duggimon
11th Jun 2019 10:44

Why are people paying a share of a £4 million valuation for worthless shares?

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By James Bolger
11th Jun 2019 10:59

Potential. Something us accountants do not understand I have been told on many occasions!

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By Vile Nortin Naipaan
11th Jun 2019 11:07

Who did the valuation? Could you not ask them to value both the whole, and the 5%.

I'd suggest that valuations for the two differing purposes are likely to differ significantly. That's why people pay professionals in favour of asking random folk over the internet.

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Psycho
By Wilson Philips
11th Jun 2019 15:04

It's a well-established principle that unconnected investors with money to burn may be prepared to pay for 'hope value' and that the price paid is not necessarily a true reflection of the market value.

Although the price paid by such investors may well be a factor in the calculations the value for the employees should otherwise be determined using normal principles, including discounts for minority interests.

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