Leaving the company but a shareholder.

[Russ T Bin]

When i joined forces with the company i presently work for / with, (small family owned company) they gave me a 20% share of the company due to the huge amount of business that i brought in to keep me sweet.

However, I am leaving the company at the end of December and am setting up on my own due to various reasons (mainly the lack of support i get), but where do i stand with regards my shareholding?

Do they have to buy them back off me?

If they show the tax man that the company doesn't make a profit, which they do to avoid huge corp tax, am i right in assuming that my shares aren't worth a carrott?

Thanks for any information that you can pass to me.

Edited by Russ T Bin on Wednesday 3rd December 14:34

[ettore]

Entirely depends upon what it says in your shareholders agreement (assuming it`s a private company). In particular look for clauses on "good leaver" and "bad leaver".

[Russ T Bin]

Thanks.

I will be departing on a good note and may even offer some business to them that they can do for me, so i would hope i would be a 'good leaver,' will check the agreement (infact i'm not sure i have an agreement as such, more like a certificate, maybe i have been duped) !

[Don]

Are these shares worth anything? You should discuss the options, particularly as you wish to leave on good terms. They might be able to buy them off you...and remember you are allowed about £7K tax free Capital Gains so it could be a good way to sweeten your severance payment without costing much in tax. Of course if they're worth £50K that won't work...

[Eric Mc]

The certificate is probably just the Share Cerificate i.e. the piece of paper that confirms the number of shares you own in the company and the date you acquired them.

Is there any value in the company?

You seem to be inferring that it hasn't been making any profits. Therefore, your shares may be worthless. However, there is nothing to stop you asking for some sort of cash buyout. Don't forget that you will be personally liable to Capital Gains Tax on the difference between what you paid for the shares and the proceeds yyou receive when you sell them (subject to exceeding the annual Capital Gains Tax allowance - currrently £9,600).

[Russ T Bin]

Eric Mc said:

The certificate is probably just the Share Cerificate i.e. the piece of paper that confirms the number of shares you own in the company and the date you acquired them.

Is there any value in the company?

You seem to be inferring that it hasn't been making any profits. Therefore, your shares may be worthless. However, there is nothing to stop you asking for some sort of cash buyout. Don't forget that you will be personally liable to Capital Gains Tax on the difference between what you paid for the shares and the proceeds yyou receive when you sell them (subject to exceeding the annual Capital Gains Tax allowance - currrently £9,600).

Spot on Eric, it is just a certificate to state how many shares i own, which is 200.

I think the case will be that they are worthless as i know for a fact that they always show that they never make any money for the reasons stated.

I will ask for a cash buyout and see how hard they laugh at me!

[Eric Mc]

You can't lose by asking. Good luck.

[VX Foxy]

Even if there was a value to your 200 shares, what's to stop them issuing 000's more thereby diluting your %age?

[Eric Mc]

Shareholders have rights and if that type of transaction was carried out by the remaining shareholders, the aggrieved shareholder is entitled to take the company to court.

[thegreengoblet]

Although your 200 shares may only be worth a nominal amount - my company shares are worth £1 each for instance, if the company pays dividends, then you are entitled to 20% of every dividend declared. May be worth holding onto them or using previous dividend declarations over the years to give you a better negotiating tool.

[Mx_Stu]

Russ T Bin said:

When i joined forces with the company i presently work for / with, (small family owned company) they gave me a 20% share of the company due to the huge amount of business that i brought in to keep me sweet.

However, I am leaving the company at the end of December and am setting up on my own due to various reasons (mainly the lack of support i get), but where do i stand with regards my shareholding?

Do they have to buy them back off me?

If they show the tax man that the company doesn't make a profit, which they do to avoid huge corp tax, am i right in assuming that my shares aren't worth a carrott?

Thanks for any information that you can pass to me.

Edited by Russ T Bin on Wednesday 3rd December 14:34

Just a couple of thoughts:

1. Did you pay anything for the shares or alternatively did you pay any tax when you received the shares? As you received them by reason of your employment then a general earnings charge would have arisen.

2. As well as the shareholders agreement you need to look at the transfer provisions in the articles of association. More often than not there will be a provision stating that if you are a bad leaver (which I would imagine you are if you are going to be in competition with them) then the company can buy them back for par value.

3. Just because the company doesn't make a profit doesn't mean the shares aren't worth anything. Shares and Assets valuation division at HMRC have several different methods for valuing a minority shareholding. In a situation where the company makes a small or even no profit they are likely to adopt a net assets basis for valuation.

My experience is more with working with companies than employees but as I said just a few thoughts.

Stu

[thegreengoblet]

coyft said:

thegreengoblet said:

Although your 200 shares may only be worth a nominal amount - my company shares are worth £1 each for instance, if the company pays dividends, then you are entitled to 20% of every dividend declared. May be worth holding onto them or using previous dividend declarations over the years to give you a better negotiating tool.

That would depend on what class of share they are. Some shares have voting and dividend rights, others have none.

Well you learn something new everyday! I didn't know that

[sa_20v]

thegreengoblet said:

coyft said:

thegreengoblet said:

Although your 200 shares may only be worth a nominal amount - my company shares are worth £1 each for instance, if the company pays dividends, then you are entitled to 20% of every dividend declared. May be worth holding onto them or using previous dividend declarations over the years to give you a better negotiating tool.

That would depend on what class of share they are. Some shares have voting and dividend rights, others have none.

Well you learn something new everyday! I didn't know that

Agreed, one of my companies has three directors, with three classes of shares. We could effectively pay everyone the same despite them owning different numbers of shares - or at least this is how I understand it.

[_Voyager_]

sa_20v said:

thegreengoblet said:

coyft said:

thegreengoblet said:

Although your 200 shares may only be worth a nominal amount - my company shares are worth £1 each for instance, if the company pays dividends, then you are entitled to 20% of every dividend declared. May be worth holding onto them or using previous dividend declarations over the years to give you a better negotiating tool.

That would depend on what class of share they are. Some shares have voting and dividend rights, others have none.

Well you learn something new everyday! I didn't know that

Agreed, one of my companies has three directors, with three classes of shares. We could effectively pay everyone the same despite them owning different numbers of shares - or at least this is how I understand it.

This is what we do. We all get paid the same (through divis) with a 40/40/20 split between the three of us.

[edb49]

Assuming there is no shareholders' agreement in place.

They can't dilute you to death without having a commercial reason for issuing the shares at a commercial price, and you can subscribe to the issue on a pro-rata basis. There is some kind of "minority shareholders protection act" which gives you some protection.