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Senior Partner
Senior Partner, Solicitor
Category: Law
Satisfied Customers: 13323
Experience:  Solicitor with more than 30 years experience
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Based on the facts below, was an equity-for-work deal we made

Customer Question

Based on the facts below, was an equity-for-work deal we made sold to us legally, can we claim cash payment instead, and would the offer be considered criminal fraud.
* The client company is a London based Ltd. company, we are an independent contractor (partnership not Ltd).
* We have neither signed any share agreements or been allocated any shares to date.
* The deal was a split cash retainer/equity deal, with the bulk of the work done for equity.
* We don't qualify as sophisticated investors, and don't believe we could ever reasonably be assumed to do so.
* The cash value of the equity amount due is ~£90K
* Deal arranged in July 2012
* Claims/Statements made at that time:
** Client company valued at £5 million - recent information suggests that around £400K to £600K is more realistic.
** We would receive shares 7.5p (1p nominal value).
** In 6 months shares would be worth 13p per share.
** In 12 months 20p per share (this and above stated, not couched as a possibility).
** Client company would be sold in 3 years (which would be this month - 2015) with hoped for share value of £7.50 to £15 per share, or 10 to 20 times our investment.
* There was never any suggestion or stated warning that there was any risk to us of not receiving at least 1 to 1 value for our time and effort invested (the amount represents about 18 months turnover for us, so we would have refused outright if we hadn't been assured that payment would be forthcoming. Only the final sale value was portrayed as being speculative, not that there wouldn't be at least some positive interest on our delaying payment.
* About 20% of the work commisioned has been paid for in cash. There is about £10K + VAT still due for cash invoices.
Submitted: 1 year ago.
Category: Law
Expert:  Nicola-mod replied 1 year ago.
I've been working hard to find a Professional to assist you with your question, but sometimes finding the right Professional can take a little longer than expected.
I wonder whether you're ok with continuing to wait for an answer. If you are, please let me know and I will continue my search. If not, feel free to let me know and I will cancel this question for you.
Thank you!
Expert:  Nicola-mod replied 1 year ago.
I apologise as we have not yet been able to find a Professional to assist you. Do you wish for me to continue to search for someone to assist you or would you like for us to close your question at this time?
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Customer: replied 1 year ago.

Hi Nicola,

Thanks, ***** ***** that at the moment we are on a free trial period and can ask multiple questions without charge?

If so I may try breaking the question up into more manageable parts, as currently it does cover quite a lot of ground.

Many Thanks,


Expert:  Nicola-mod replied 1 year ago.
Hello Stefan,
Yes, at the moment you are on week's free trial of our membership programme, so please feel free to ask more questions.
Thank you,
Expert:  Senior Partner replied 1 year ago.
Hi thanks for your question. I am sorry you have had to wait for an answer.

You have reaised a number of different points in the questions that you posted.

First of all the financial services act restricitons on financial promotions and carrying on investmetn business i.e your points about high net worth individuals etc are unlikely to apply here. It sounds like a private offer by the company to you rather than a public placing or offer.

Have the shares actually been issued to you ? Do you receive accounts and othe rshareholder communication? Quite oftent in these circumstances the paperwork is never done properly. Is there any shareholders agreement that entitles you to sell your shares?

If this is a private company then your only recourse may be to sue for damages.

However if misrepresentations were made to you about the value of what was being offered then you may well have a claim misrepresentation. If you were induced to accept equity as part of your remuneration by false or misleading statements then certainly you can do so. Do you have any evidence to support what you say? Any emails or letters? that would certainly help.
Customer: replied 1 year ago.

Thanks for your reply!

We haven't had the shares issued, or signed the share agreement. We have never received any company accounts. Our primary concern is that having agreed to do the work in return for equity (in July 2012) we could be held to that, and not require payment in cash now.

We are fairly confident the company is insolvent, and hence the shares will shortly be worthless. Additionally we wonder whether, if the offer wasn't legal, it might justify a claim of directorial misconduct and associated personal liability.

The main email 'prospectus' selling us the deal in July 2012 was:


£40 per hour x 40 hours per month = £19,200 / Company is currently around a £5million valuation (on paper) valuing its future potential...

We are looking and have set up for up to £2million worth investment made up of of 1p shares (not 2,000,000 shares) we are currently selling at between 7.5p and 10p per share..

So in percentage terms £19,200 worth of your business is divided by a £5,000,000 valuation = 0.003

£50k = 1% of the company
£100,000 = 2% of the company

So you are buying 10p Shares at 7.5p. In 6 months those shares will be worth 13p per share, in 12 months 20p per share etc etc

When we sell in 3 years we want those shares to be around £7.50 to £15 per share generating you returns of 10-20 times your investment.

So the more you put in, the more you get out.


Since then we have learned that last year the company made £130K profit (which presumably went into the director's overdrawn loan account as it we have a number of cash invoices still outstanding from that period) which would put the business value at around £300K (2 * owner's benefit). Certainly nowhere near the £5 million claimed. [Earlier years' profits were lower].

The statements regarding the increase in share value have also proven to be completely false.

Mainly, as mentioned above, we just want to know whether we can be held to the deal, and whether the misrepresentation might be considered sufficiently serious to provide leverage in getting some payment on the work commissioned.

Many Thanks,


Expert:  Senior Partner replied 1 year ago.
Hi Stefan
I am tied up today but if it is ok I will send a detailed answer later or this evening
Expert:  Senior Partner replied 1 year ago.
The email that set out the terms could constitute a financial promotion under the Financial Services and Markets Act 2000 ( known as FSMA) . Under s21 it is an offence to make a financial promotion unless it is approved by and an authorised person ( ie someone FSA or now FCA regulated) or is exempt.

If this is a financial promotion and it is likely to be because it is an invitation to subscribe for shares then it will be unlawful unless it is covered by an exemption. Any contract will then be unenforceable. However my view is that this is arguably exempt because it is a one off communication tailored to you. ( this is technical jargon but it really means it is a private specific communication not a generic public one)

Regardless of whether it is a financial promotion, if it is misleading then you have a claim for misrepresentation.

However if the Company is bust then your claims are pretty worthless. Any litigation is not going to be easy. Yes you may have a claim against the individual director who made the representations but are they of any substance?

My view is that your best strategy is to write saying a) They never issued any of the promised shares; and b) you are told their original representations are an unlawful financial promotion as it was not approved by an authorised person. In the circumstances you have a claim for the full value of your services and you require payment. Seee where you get to.

I have to warn you though that it sounds as if you are clutching at straws a bit. I do not know what due diligence you did but doing extensive work for equity is very high risk and usually is offered because the company cannot pay. If it works then it produces high returns but if it does not then you end up with nothing.

Let me know if you have follow up questions
Senior Partner, Solicitor
Category: Law
Satisfied Customers: 13323
Experience: Solicitor with more than 30 years experience
Senior Partner and other Law Specialists are ready to help you
Customer: replied 1 year ago.

Thanks, ***** ***** very helpful.

We had been working with the client for over 15 years prior to entering into the deal, he did have a reasonable track record, having sold one business built around a site we developed for him for over £1 million before. In hindsight we should at least have insisted on more protections and stopped work immediately he became significantly overdue on payments.

Expert:  Senior Partner replied 1 year ago.
Well it is obviously worth a try to get something but unless the ndividual has substantial asses it is probably not worth purusing him in coatly litigation. If you are owed money the best thing may be just to try and pressure the company - serving a statutory demand for money due sometimes works - any solicitor can help you do that

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