Posts Tagged ‘Shares’

Share transfers

Posted on: August 24th, 2011 by Liz Mounfield No Comments

The new model articles for private companies highlight a change in the law which needs to be carefully addressed by directors of private companies when considering share transfers.

The 1985 Table contained the following provision in article 24: “The directors may refuse to register the transfer of a share which is not fully paid to a person of whom they do not approve”. This was inappropriate for private companies for at least three reasons. First, private companies rarely had partly paid shares. Secondly, in so far as this article was relevant to a private company it was essentially a credit control measure. The directors might be happy that A should owe money to the company but considerably less than happy that B should owe money. Thus when A tried to transfer his partly paid shares to B, the company could refuse to register the transfer to B. Thirdly, most private companies would extend this article to cover fully paid shares so as to allow the board to exclude undesirables from membership generally. A typical special article might read: “The directors may, at their absolute discretion and without giving any reason therefor refuse to register the transfer of any share to a person of whom they do not approve”.

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Giving workers a share in your company can be a great idea, but be careful how you do it

Posted on: December 23rd, 2010 by LeightonReed
Leighton Reed, Director, MHA Broomfield Alexander

Leighton Reed, Director, MHA Broomfield Alexander

MHA Broomfield Alexander publishes a series of articles focusing on business advice and information. This article appeared in the Business Advice column, Western Mail, 22 December 2010

Incentivising employees by offering them a share in your company can be a great idea – but beware. You need to carefully consider the arrangements upfront, otherwise it could end up costing the staff you’re trying to reward and also you.

If you were to simply offer shares to an employee at a discount on their market value or for free, the employee would be subject to income tax on the discount and possibly national insurance.  Similarly, if you were to grant the employee an unapproved HMRC option which they can exercise at today’s price or at par, then any growth from the grant of the option to exercise will be subject to income tax and possibly national insurance.

Furthermore, on a sale of the shares acquired in the unapproved circumstances described above, there is a risk that part of the future growth may be liable to income tax and national insurance rather than capital gains tax.  This is not tax efficient as currently the capital gains tax rates are significantly lower.  However, it is possible to ensure that the future growth is locked into the capital gains tax regime by the employee and employer entering into an election within 14 days of the acquisition of the shares.

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