Your help... Should I accept shares in th Ltd company I work for

[Stubble]

Hi,


I wonder if anyone would be so kind as to answer a question or give some advice - I have recently been offered shares in the Ltd company I work for and was wondering if there is anything I should consider or ask before accepting.


I have read that there is no liability to me as an individual and as I am being given these shares free I won't lose any investment if the company goes under.

Thanks

 

[Dragon Media Group]

For what reason has this offer been made? Instead of a bonus?

If you are simply being offered shares the worst that can happen is that as a shareholder you will not receive a dividend if the business fails to make a profit.

 

[stockdam]

I'd prefer cash.

I've been offered shares in the past and they never made it above water so I couldn't sell them.

 

[Stubble]

For what reason has this offer been made? Instead of a bonus?

If you are simply being offered shares the worst that can happen is that as a shareholder you will not receive a dividend if the business fails to make a profit.

Thanks - it is in an effort to bind me (in some way) to the company. They haven't yet stated the number of shares - just the cash value.

 

[matt.chatterley]

If it's going to cost you nothing to acquire them, and it is not in lieu of a payment - take it, as long as you believe it may be worth having done so, at some point in the future!

 

[Stubble]

Thanks for the advice. Much appreciated.

 

[TotallySport]

Your cash value and their cash value are two different things, I would look at percentages not cash values. Or get the company valued and take it from there.

 

[AdvinBiz]

Check the conditions for sale of the shares, you may find that you have to offer them to the existing shareholders first. Also ask what class of shares you are going to be allocated?

 

[Mr_Wizard]

The company I'm working at today has given shares to two individuals in the same manner you have described - it is a simple incentive to try and secure the long term services of two key members of staff.

I am in complete agreement with a previous comment though - not in lieu of a payment, I fell for that one about 12 years ago and came away far worse off.

 

[frimleypit4]

I would recommend looking at the tax implications. In my case it was better to get options through an EMI schema as it reduced my eventual tax liability from 40% to 18%. I believe if you are 'given' shares then you might end up paying tax twice, once as a taxable benefit, then again on the profit when you sell? Obviously they could become a very valuable asset, obviously your company values you as an employee; they are offering this as an incentive so use it to your advantage, work out what the implications are and then negotiate things so that it really is an incentive for you! Some other things to consider are the rights attached to the shares. Some important ones include (and I apologise if the terms are wrong because I can't remember!):

Dividend rights - will you be paid dividends the same as other share holders
Asset rights - you have rights to a share of the assets should the company be wound up
Non dilution rights (I know they aren't called that - someone will correct me). As someone previously mentioned the percentage is more important than the value. So, consider you are given 5% of the equity then external investment is achieved and 'new' shares are allocated to the investor, to equal 50% of the overall total. Under normal circumstances your share will be diluted, so you now have 2.5% - but in theory they are worth twice as much because of the additional capital. These rights allow you to maintain your initial percentage, providing you are prepared to invest at the same rate as the external investor. So, basically you can maintain your 5%, providing you are prepared to pay the 'new price'.

As I say, I have only gone through this process recently myself and this is only some of things I learned during the process. If you think the shares could potentially be a life changing opportunity then definitely get some proper advice.

BTW. I ended up with options due to tax benefits but had a clause whereby I could exercise them immediately and turn them into real shares if i wanted to.

 

[Stubble]

Thank you everyone - very helpful. A follow-on question if I may...

The value of the shares are approximately 6.5 to 7% of the value of the company and there is a risk of dilution through a stubborn shareholder investing often (politics), however one grey area for me is the tax side of things - I will be a non-resident share holder (does this even make a difference). The company is UK based but I am now living and working for them abroad. Any ideas?

 

[matt.chatterley]

Going to give a bit of general advice which I apply to things - if you are not sure about the financial situation, or you are worried about complicating your tax - go to your accountant and/or tax advisor.

It may depend on where you are living, but I don't think this should create serious problems? I live in the Channel Islands, and in my case, if this were me, and the company were based in the UK, the only complication would be my obligation to pay local income tax on any dividends, or upon sale of the shares (because thats how it works here - and there is no capital gains allowance).

I know that (in my CI example), the situation can change if the shareholding is significant (or if you are considered a Director or Principal of the company).

In short: I am not an accountant, but I don't think there would be serious issues, but if in doubt, get professional advice.