What happens with my shares if I leave my limited company

[johnstorey]

I have worked for a limited company for a number of years now. I was made a Director a number of years ago and it has been registered with companies house. I paid around £20,000 to buy shares in the company and I take a dividend each month.

Where do I stand if I now wanted to leave this company. My share certificate says 6 shares at £1, i was told that was standard for a share certificate at the time.

 

[Mr D]

Whatever is in the contract regarding the shares.

Some places you only keep the shares while employed. Some places you can walk away with the shares after a time.

 

[johnstorey]

Whatever is in the contract regarding the shares.

Some places you only keep the shares while employed. Some places you can walk away with the shares after a time.

Thank you for your reply. I will have to check back but as far as I remember I signed the share certificate and don’t remember signing any contract.

 

[Mr D]

Thank you for your reply. I will have to check back but as far as I remember I signed the share certificate and don’t remember signing any contract.

How about your employment contract?

 

[johnstorey]

How about your employment contract?

When I joined over 13 years ago it was as a trainee and never had another contract since.

 

[Mr D]

When I joined over 13 years ago it was as a trainee and never had another contract since.

That's all right, any changes to the contract you agreed to.

Seriously, if there's nothing about the shares then its common to simply keep them. Whether there are ever any dividends issued again or whether you are asked to sell them to another shareholder or the company is open to question.

Decision to sell shares usually requires both parties agreeing a price.

 

[johnstorey]

That's all right, any changes to the contract you agreed to.

Seriously, if there's nothing about the shares then its common to simply keep them. Whether there are ever any dividends issued again or whether you are asked to sell them to another shareholder or the company is open to question.

Decision to sell shares usually requires both parties agreeing a price.

Thanks for the reply. We normally declare a dividend at the end of each month based on the net profit. I don’t think they would let me keep them and continue paying me a dividend if no longer work there so I guess they would need to buy them back as a company or another shareholder can buy them off me. What I wanted to make sure was that I don’t have to surrender them if I leave or that they only have to pay me £1 a share as detailed on the share certificate when I purchased them

 

[Mr D]

Thanks for the reply. We normally declare a dividend at the end of each month based on the net profit. I don’t think they would let me keep them and continue paying me a dividend if no longer work there so I guess they would need to buy them back as a company or another shareholder can buy them off me. What I wanted to make sure was that I don’t have to surrender them if I leave or that they only have to pay me £1 a share as detailed on the share certificate when I purchased them

If the shares are yours then its not a question of letting you keep them. Any more than when you have been shopping the store lets you keep the goods you buy and take home.


You may be asked to sell at a mutually agreed price. Or as is more common, they ask at some small price and you say no.
Dividends are paid to shareholders.

Nothing to do with working there - many of the shareholders of big PLCs don't work there but still get dividends.

You get wages for working. Dividends come from share ownership. You will not have got dividends from working there.

Usually when there is a requirement to surrender shares on leaving its part of a contract or shareholder agreement.

You spent £20k to buy 6 shares at £1 each?

 

[johnstorey]

If the shares are yours then its not a question of letting you keep them. Any more than when you have been shopping the store lets you keep the goods you buy and take home.


You may be asked to sell at a mutually agreed price. Or as is more common, they ask at some small price and you say no.
Dividends are paid to shareholders.

Nothing to do with working there - many of the shareholders of big PLCs don't work there but still get dividends.

You get wages for working. Dividends come from share ownership. You will not have got dividends from working there.

Usually when there is a requirement to surrender shares on leaving its part of a contract or shareholder agreement.

You spent £20k to buy 6 shares at £1 each?

The £1 I am referring to is the nominal value which I was told at the time was standard practice to be £1

 

[Mark T Jones]

They are presumably refering to their own standard practice, as it certainly isn't a legal thing. EDIT - I think what you are refering to is that you bought £1 shares at £3,333 each - which is indeed normal.

In the absence of a contract, the shares are yours to do with as you like. In reality it would make sense for them to buy them back, but they are not obliged to do so, nor are you obliged to sell.

Their 'value' is precisely the amount that you agree between you.

If you don't sell, you are entitled to dividends on par with your shareholding

 

[Chris Ashdown]

The item you need to ask for is a copy of the shareholders agreement if there is one, this normally contains clauses on what happens if a shareholder leaves the company etc

If there is no shareholders agreement or separate contract then no doubt you csn keep your shares and get paid any dividends allocated dependent on your percentage of the total shares.

You are protected by law that they cannot dilute your share holding, as the law dictates that any new share issue must give you the right to buy new shares in that issue to keep your percentage holding the same as before the new issue. But do you really want to invest more money

By law all shareholders must be paid if a dividend is allocated

Must question if you fully understand the duties of a director, if you ask such a question, as they are defined in law and you are responsible

 

[Lisa Thomas]

All signs point to you leaving the job but retaining your shares unless you have specifically agreed to something different.

 

[OGgy21]

'You are protected by law that they cannot dilute your share holding, as the law dictates that any new share issue must give you the right to buy new shares in that issue to keep your percentage holding the same as before the new issue. But do you really want to invest more money' Unless of course there is a provision in the articles/ SH agreement expressly excluding pre-emption

 

[Paul Norman]

This, sadly, is another example of how things get less tidy when we don't document stuff.

Buying shares for £20k ought to have involved a contract. And your employment at the company ought to be covered by a regularly updated contract.

It's too late to correct that now, and not helpful to your current situation.

But please, readers of these forums, take the trouble to get things done in a way that is clear, documented and that deals with situations like this one.

In this situation, the shares ought to remain yours. And the company ought to continue to pay dividend on those shares. But we all know that is unlikely to be how the company see things, and just assuming that will happen won't make it happen.

Raise this topic with them at the point you want to announce your intention to leave. It will be a negotiating point.

 

[The Resolver]

How many shares in total have been issued? This will determine your percentage of the whole and thus the extent of the rights you have in law. You must understand your rights to help you, or an adviser, to begin to assess the value of your shares. For example, although a minority 26%+ has more rights than =<25%

Do you want to sell or retain? Usually in a small (apologies for the assumption) private company it makes little sense to retain once left working for the company as you have no control but can be a nuisance by exercising your rights (call/attend shareholder meetings etc) .

If you want to sell then best strategy is to convince the others you do not want to sell but sit back and enjoy dividends while holding directors to the duties they owe in law to yourself as a shareholder. This will raise the sale price.

But as others have said check carefully before you l;eave that you have not signed a Shareholders Agreement in the past which might require you to sell and possibly under a fixed method of valuation. Also need to check out the Articles of Association. You can save a lot of tax by reaching an agreement, depending on your reasons to leave (constructive dismissal triggered by conduct of others?) , with part of the monies paid being compensation for loss of office (tax free up to £30,000) rather than taxable share sale.

Call me next week if you would like further advice (no charge).

 

[OGgy21]

a slightly unrelated point, but do shares have to be soldat market value or could you chose to sell them as low (i.e. at nominal) if you like?

 

[The Resolver]

Firstly, as with anything you can only sell at a price at which people are prepared to buy. However if there is a Shareholders Agreement it will usually contain a process for a valuation by a third party eg accountant that is binding on you. Clauses may also contain a methodology for valuation, such as applying (or not) a minority share discount below a pro rata valuation. It may also contain a bad leaver clause meaning you have to sell for a nominal £1.

 

[OGgy21]

thanks, i thought there may be some tax implications if you sold below market value, taking into account CGT etc

 

[johnstorey]

How many shares in total have been issued? This will determine your percentage of the whole and thus the extent of the rights you have in law. You must understand your rights to help you, or an adviser, to begin to assess the value of your shares. For example, although a minority 26%+ has more rights than =<25%

Do you want to sell or retain? Usually in a small (apologies for the assumption) private company it makes little sense to retain once left working for the company as you have no control but can be a nuisance by exercising your rights (call/attend shareholder meetings etc) .

If you want to sell then best strategy is to convince the others you do not want to sell but sit back and enjoy dividends while holding directors to the duties they owe in law to yourself as a shareholder. This will raise the sale price.

But as others have said check carefully before you l;eave that you have not signed a Shareholders Agreement in the past which might require you to sell and possibly under a fixed method of valuation. Also need to check out the Articles of Association. You can save a lot of tax by reaching an agreement, depending on your reasons to leave (constructive dismissal triggered by conduct of others?) , with part of the monies paid being compensation for loss of office (tax free up to £30,000) rather than taxable share sale.

Call me next week if you would like further advice (no charge).

Sorry I know it has been 5 years ago since this post but is it still okay to call you?

 

[The Resolver]

Sorry I know it has been 5 years ago since this post but is it still okay to call you?

Yes . 07885 728801