leaving employer as shareholder what happens to shares etc?

[Maverick007]

Just resigned as a Director of a small business and going to work for another company in a different field.

I am a 40% shareholder of the company (there are 2 other shareholders - one with 40% also and one with 20%). Obviously I need to get myself removed from companies house etc as a director, but wondered what happens to my shares? The business to be honest isn't worth much, if anything. It turns over approx. £150k per annum and has made a small loss in the last couple of years of trading. It potentially could become a lucrative business in the future. Am I being greedy wanting to hang on to my shares of the company I have developed or am I better off just giving them to the other shareholder (s)?


Any advice would be very welcome!

[Tallow]

Coincidentally, I am in the same position as you at the moment. Assuming you don't have a specific shareholders agreement in place that says to the contrary then the shares are yours, irrespective of whether you are still an employee or not.

What you do now with them is up to you. Personally, I'd suggest not just giving them away - they still have an inherent value and you have contributed to the creation of the business. Presumably the most likely buyers of the shares would be the other shareholders. What they are worth to both you and them is entirely subjective. If you can agree a price that all parties are happy with, then this is an ideal outcome.

You could also speculatively keep onto your share of the company, too. You may find they proactively approach you to purchase them though.

This is a useful guide on what you can do: http://www.jonathanlea.net/2014/how-to-sell-and-tr...

TL;DR I'd either sell them or keep them, but I wouldn't just give them away (although of course you are free to do so given they belong to you!)

[anonymous-user]

Shares in a small unlisted company have no market value. You can see if the other shareholders will buy you out at an agreed price acceptable to you. If they won't, you can remain as a shareholder, and the majority mustn't act in a way unfairly prejudicial to you.

[Eric Mc]

I don't suppose there was a shareholder's agreement in place?

[Europa1]

Check the articles of association as well - they may contain good and bad leaver provisions setting out what happens to your shares. Resignation is usually a bad leaver, in which case you may get the face value of the shares or get back what you paid for them. If there aren't any good/bad leaver provisions, you get to keep the shares, but check also for drag along and tag along provisions - ie if the others want to sell at some point in the future and you are still a shareholder, can they force you (the drag along), or do you have the right not to be left behind and to sell out as well (the tag along).

What percentage of the company does your shareholding represent? - as a previous poster has said, shares in an unlisted company can be a sod to shift as there is no market to trade them on. If you're a minority shareholder, the other shareholders might decide to just let you stew (subject to the Companies Act provisions on unfair prejudice on minority shareholders). If you hold 25+-49.99% (particularly if there are no drag or tag along provisions), your bargaining position improves as you could be an awkward sod as a significant minority shareholder - that might concentrate the minds of the others to offer you a sensible price now.

[anonymous-user]

Europa1 said:

...

What percentage of the company does your shareholding represent? ...

Tricky one. Here's a clue:

Maverick007 said:

...

I am a 40% shareholder of the company (there are 2 other shareholders - one with 40% also and one with 20%).
...

[Jasandjules]

Eric Mc said:

I don't suppose there was a shareholder's agreement in place?

That's what I was going to say. It should have set down what will happen in the event you resign.

[Europa1]

Breadvan72 said:

Europa1 said:

...

What percentage of the company does your shareholding represent? ...

Tricky one. Here's a clue:

Maverick007 said:

...

I am a 40% shareholder of the company (there are 2 other shareholders - one with 40% also and one with 20%).
...

Thanks very much.I'm assuming that's on a fully diluted basis.

[onedsla]

Breadvan72 said:

Shares in a small unlisted company have no market value. You can see if the other shareholders will buy you out at an agreed price acceptable to you. If they won't, you can remain as a shareholder, and the majority mustn't act in a way unfairly prejudicial to you.

BV - as you correctly state, there is no 'market value' (as there is no 'market' to speak of) but what if, for example, the shares receiving a healthy sustainable dividend but the shares were being sold at well below their clear worth? Even at £1000, HMRC take a passing interest in the valuation, no? https://www.gov.uk/guidance/stamp-duty-on-shares

There may be:
Stamp duty considerations for those purchasing the shares
Capital Gains tax to pay from the person selling

Given 'no market' on which to base the valuation, how do we know whether a mutually acceptable price between parties is 'fair' in HMRC's view?
(Maybe one for Eric?)

[Tallow]

I don't think it matters, does it? My understanding is that there isn't an established market value... So willing buyer, willing seller: Someone might wish to buy the shares but the value placed on it would be largely subjective and most of the value would presumably consist of goodwill on a company with a turnover of this level. It's also fair to assume that the likely buyers would be the other shareholders of the business.

From an HMRC perspective, I don't think the value of the company would make any difference on that basis. The prevailing rate of stamp duty and capital gains tax would still apply. HMRC wouldn't have much interest in the agreed value beyond getting their cut of whatever it was, would they? Or am I missing something?

[anonymous-user]

onedsla said:

Breadvan72 said:

Shares in a small unlisted company have no market value. You can see if the other shareholders will buy you out at an agreed price acceptable to you. If they won't, you can remain as a shareholder, and the majority mustn't act in a way unfairly prejudicial to you.

BV - as you correctly state, there is no 'market value' (as there is no 'market' to speak of) but what if, for example, the shares receiving a healthy sustainable dividend but the shares were being sold at well below their clear worth? Even at £1000, HMRC take a passing interest in the valuation, no? https://www.gov.uk/guidance/stamp-duty-on-shares

There may be:
Stamp duty considerations for those purchasing the shares
Capital Gains tax to pay from the person selling

Given 'no market' on which to base the valuation, how do we know whether a mutually acceptable price between parties is 'fair' in HMRC's view?
(Maybe one for Eric?)

I deffo defer to Eric on that one. Horses for courses!

[anonymous-user]

Purity14 said:

onedsla said:

but what if, for example, the shares receiving a healthy sustainable dividend but the shares were being sold at well below their clear worth?

If the shares were different classes of shares, then the majority could agree to pay a dividend and exlude the OPs class of shares.
Thus OP would never get a return, and there would be no incentive to buy him out of the business.

That might amount to unfair prejudice and afford the minority shareholder a judicial remedy. In an unfair prejudice petition, one possible remedy is an order that the majority buy the minority shareholder out at a price determined by the Court or an expert appointed by the Court.

[onedsla]

Tallow said:

I don't think it matters, does it? My understanding is that there isn't an established market value... So willing buyer, willing seller: Someone might wish to buy the shares but the value placed on it would be largely subjective and most of the value would presumably consist of goodwill on a company with a turnover of this level. It's also fair to assume that the likely buyers would be the other shareholders of the business.

From an HMRC perspective, I don't think the value of the company would make any difference on that basis. The prevailing rate of stamp duty and capital gains tax would still apply. HMRC wouldn't have much interest in the agreed value beyond getting their cut of whatever it was, would they? Or am I missing something?

Sorry to deviate from the thread, but I think HMRC may pay more attention that you'd imagine.
Here's a scenario:
Wealthy individual who has majority of wealth in an investment vehicle company receives bad news from the doctor. His company own multiple properties with a market value of £100m. (S)he 'sells' his 10 shares (entire company) to his/her children for £1 each and croaks the next day. The children pay no stamp duty on the transfer nor inheritance tax, right?

[Maverick007]

thanks for all the advice, very useful. I think when a new shareholder bought into the business last year, we had a proper shareholders agreement drawn up but need to check this.


Could the company decide to cease business in order to avoid having my shares sitting there? They could then re set the business up under a different name??

[anonymous-user]

If the business were to be sold to another entity at an undervalue or on anything other than arms length terms that would be unfairly prejudicial to you. If the company were to be placed into liquidation or administration, the insolvency practitioners appointed to sort out its affairs would have a duty to act fairly to all creditors and shareholders.

[anonymous-user]

A change of name would achieve nothing. Perhaps you meant a change of entity running the business. Phoenix operations often defeat creditors, but as a shareholder you would have rights to unravel any malarkey, although if push came to shove you might have to incur costs to enforce those rights.