Offered a shareholding with new job?

[Formosa]

I have been offered a job with a small company. The package includes a 10% shareholding (I will be trying to negotiate upwards pre acceptance).
I will scrutinise accounts and business plans to gauge prospects of the company, but what else do I need to look out for?

Eg is there a tax liability on receiving the shares initially or does this only arise on a future sale of them?

What are typical valuation methods eg multiple of past earnings, net assets etc

What specific clauses need I include in a shareholder agreement for protection (current shareholders are 70% husband & wife & 30% elsewhere)

What are the consequences if any for me tax-wise of being a 10-15% shareholder (but not a director)

Should I ask to be a director?

Anything else I should insist on or look out for?

Lots of questions there but any help appreciated.

 

[ClubMan]

Re: Offered a sharholding with new job?

If you receive shares at zero cost then there would most likely be a tax implication - probably income tax. At least that's the tax implication when you acquire discounted shares by exercising them at a discounted value through an ESOP/ESPP (income tax on the discount and then CGT on any capital gain with respect to the market value at the time of exercise that may arise from future disposal). I presume that the general tax treatment applies to shares in private companies acquired at a discount or no cost.

Being a director involves very significant responsibilities so only undertake this role if you are aware of them and they are acceptable to you.

I think you should get independent, professional advice from an accountant/tax advisor perhaps.

 

[Purple]

Re: Offered a sharholding with new job?

I think you should get independent, professional advice from an accountant/tax advisor perhaps.

That's good advice. Being a minority shareholder in a private company is worth bugger all in real terms.

 

[Brendan Burgess]

Re: Offered a sharholding with new job?

It is a bit odd to be given a 10% shareholding in a company straight up. It would be more usual to be given an option to buy the 10% if you meet certain targets.

Are there some conditions attached? Do you have to stay in the company for a number of years?

Shares are only worth something if you can sell them when you want to. So you would need to have a valuation in place. That the other owners would have an obligation to buy them at say 6 times pre-tax profits. Many people have minority interests which are worth nothing because no dividends are being paid.

I would suggest that you treat the shareholding as a bonus. You should first be satisfied that you are getting a good job and a good package. If they are trying to give you a shareholding in the company so that they can pay you well below the market, I would be very suspicious of it.

Decide on the business considerations first. If they fall into place, then look at the tax aspects. It is a complex area and I am not a tax advisor. My understanding is that if you get shares, they will be given a notional value and you will be subject to income tax. The last thing you want to do is to pay tax on something, which you can't realise any value for. The firm's accountant would have to do a calculation for the Revenue which would probably be based on around 6 times earnings. This is a very, very rough guide.

Brendan

 

[Formosa]

Re: Offered a sharholding with new job?

It is a bit odd to be given a 10% shareholding in a company straight up. It would be more usual to be given an option to buy the 10% if you meet certain targets.

Are there some conditions attached? Do you have to stay in the company for a number of years?

Shares are only worth something if you can sell them when you want to. So you would need to have a valuation in place. That the other owners would have an obligation to buy them at say 6 times pre-tax profits. Many people have minority interests which are worth nothing because no dividends are being paid.

I would suggest that you treat the shareholding as a bonus. You should first be satisfied that you are getting a good job and a good package. If they are trying to give you a shareholding in the company so that they can pay you well below the market, I would be very suspicious of it.

Decide on the business considerations first. If they fall into place, then look at the tax aspects. It is a complex area and I am not a tax advisor. My understanding is that if you get shares, they will be given a notional value and you will be subject to income tax. The last thing you want to do is to pay tax on something, which you can't realise any value for. The firm's accountant would have to do a calculation for the Revenue which would probably be based on around 6 times earnings. This is a very, very rough guide.

Brendan

Thanks Brendan. I will be pushing a fairly watertight shareholders agreement to try to safeguard my share value.
They are paying below market salary (but only very slightly). They are in a line of business that is currently a popular takeover target by bigger players & hope to build it up for another 5 years & then sell-off. They want someone in who will stick it out to this end with them.
The shares will be issued to me 3%, 3% & 4% over the next 3 years and I presume they will try issue them as some sort of deferred share to stop me doing a runner earlier (though there have been no discussions yet re the conditions attaching)

Anyway, am meeting them next week & I'll have a list of requirements done out.