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Jo C.
Jo C., Barrister
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Experience:  Over 5 years in practice
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I have a question over salary sacrifice and shares

Customer Question

I have a question over salary sacrifice and shares
Submitted: 2 years ago.
Category: Law
Expert:  Alex J. replied 2 years ago.
Hi,
Thank you for your question and welcome.
MY name is ***** ***** I will assist you.
Can you provide me with any further details?
Kind regards
AJ
Customer: replied 2 years ago.

Hi AJ

In April this year I was asked to take a 4 -month salary sacrifice in return for 2% of ordinary shares and 0.5% in options. The company had been restructured and cash was very tight. I signed a document confirming that I would be happy to do this but this mentioned nothing about the shares. I was told that this was because to save on potential tax the shares would be issued via an EMI scheme. I am now back to being paid but still do not have my ordinary share certificate of the 2%. Again , I am being told that this is due to the complexities of issuing shares under the EMI scheme.

I just wanted advice on my legal position here on if I decided to leave the company. Firstly if I was to leave before i was given the share certificate? Secondly ;if I was to leave the company after having the share cetifcate. I understand that share issues are under the Articles of Association and whether I am a good or bad leaver would determine what happens with my shares. In my mind though I have bought these shares and there appears to be offer and acceptance here? I gave up my salary in return for the shares. Although I have nothing in writing ;verbally this was agreed. Also ; I have an email confirming that i was now a shareholder as I sacrificed my salary.

Hopefully you can offer some guidance here

All the best

Danny

Expert:  Alex J. replied 2 years ago.

Hi, Thank you. The EMI is basically the founders tax relief, this may create issues but tends to only be an issue if you are creating different classes of shares - have they given you any other details.? Do you have anything in writing? Kind regards AJ

Customer: replied 2 years ago.

Hi Alex

I do not have anything in writing detailing the EMI scheme. I have emails from my FD ;giving me an update that setting up the EMI is complex but under way etc.

Also as mentioned above , I have an email from the CEO confirming that I am a shareholder as I was giving up 4 months salary. I am not really questioning the EMI setup and complexities. It is more about what my rights are should I wish to leave the organisation.

Thanks

Danny

Expert:  Alex J. replied 2 years ago.
Hi,
Thank you.
In terms of whether you are a shareholder, you are certainly entitled to shares but without a share certificate and issued shares then you are not the legal owner of the shares.
1. Lets us assume the shares have not been issued.
- If you leave unless the shares actually have any intrinsic value the largest value you could feesible put on them would be 4 months salary.
2. Assuming the shares have been issued and you are the legal owner of them, you mentioned the articles contain good and leaver and bad leave clauses.
Do the articles also contain a mechanism for valuing the shares?
Kind regards
AJ
Customer: replied 2 years ago.

Hi Alex

Ok thanks, ***** ***** was to leave though , I imagine that the company would try and say that the salary sacrifice was seperate. Do you think I would have a good case with email evidence and conversations that there was an agreement then ?

In terms of the valuation ; have extracted the section attached if this helps.

Expert:  Alex J. replied 2 years ago.
Hi,
Thank you.
I will need to open this on my home computer. I may not revert to you until this evening so please do not be concerned if you do not hear from me right away.
Say you had your shares - is the company actually worth anything at the moment?
Kind regards
AJ
Customer: replied 2 years ago.

Hi Alex

Thats ok , comeback to me when you can. Is the company worth anything ....is a good question ! We have had a very turbulent year! Currently we should finish with an EBITDA of £250k with sales of £7.8m in our core business. But it is not as black and white as a valuation on this , we are a Gift company but also have various special projects and inventions we work on and have IP on these. Its a bit like a lottery ticket as if one of the projects hit the big time then it radically transforms the company. But then again everyone has that sinking feeling after the lottery numbers are drawn too!

Cheers

Dan

Expert:  Alex J. replied 2 years ago.
Hi,
Thank you very much.
Kind regards
AJ
Customer: replied 2 years ago.


Hi Alex


 


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