Selling shares in a company - can anyone help

max00d

bowlhead99 wrote: »

The £11k does not need to match with whatever work you did up front because the £11k relates to the exit value he's paying you off with for what the shares were worth when you left the company, not what you paid for them when you joined the company.

As we understand it, you'd agreed to pay about £20k for a number of shares that equated to 25% of the company.

In the end you did what you thought was about £9.5k worth of work and paid £10k in cash and he allowed you to have the 25% of the company shares anyway. So either you are saying the work was worth £9.5k and you should invoice £9.5k and he has effectively let you off with only paying £19.5k for the shares, or you and he are agreeing that the work was worth £10k and you have paid £20k for the shares.

Then on exit we are saying that the company became a little more valuable and you are selling the shares for £21k, of which you've been paid £10k and are waiting for the other £11k.

Depending whether you agree the work was worth £10k or £9.5k, you will have income of £10k or £9.5k and a total cost of buying the shares of £20k or £19.5k. Then when selling for £21k you will have a £1k capital gain or a £1.5k capital gain. (both of which are likely to be within your annual capital gains allowance).

It would seem to be preferable to say the work was valued at £9.5k than £10k as presumably that gives you lower taxable income and you have a spreadsheet of work done which supports it. However if he has already done the paperwork for the share issuance and had only allocated the shares on the assumption that you had given him £10k worth of work then maybe he will be expecting invoices for £10k.

Of course, I'm not a tax professional or practicing as an accountant here, I'm just some guy on the internet so take it with a pinch of salt and consider professional advice if necessary.

Thanks for this. Really helpfull!

max00d

Thrugelmir wrote: »

I suspect that your ex partner has "messed" up and is backtracking to put his accounts into order.

I have suspected this as well. Thanks.

Just as an aside does anyone know what the implications for income tax on me would be, and also what are the implications for capital gain tax on my ex partners behalf as I'm sure he wont have declared anything.

max00d

bowlhead99 wrote: »

You are saying you did it for him as a 'favor' but then you are talking about not having to pay wages out. Would it not be the company that avoided having to pay wages out? As presumably it is the company who would be doing the employing as his business was or is now a corporate structure?

The way you described it, it wasn't a favour, it was almost £10k of work which you provided to him/the company so that they would give you £20,000 'worth' of shares while only requiring a £10,000 cash contribution? So effectively he arranges for him/his company to give you the other £10k of shares for the ~£10k of consultancy work / development work / marketing work etc etc that you had provided and for which he or it owed you.

Thanks again for your input on this. However I just want to add to this. The intention was always to firm a company and go into partnership. With a view to me leaving my day job. I was invested in this project. I did not merely do consultancy work. We agreed that I would work of a portion of the equity in order to build a client Base and grow the business.

The business at the time would not have been able to afford to contract any of this work. If I had not agreed to 'help' in this was the company would not have the turnover it now does a year later. Remember I was investing in my future with my time.

I would consider this a type of 'sweat equity'. In exchange for this plus £10k I received 25% of the company.

To turn around and demand invoices for what was an agreement between two friends seems rather disingenuous to me.

Particularly considering he paid me just over half of the amount he wants invoiced (equivalent day rate). For a few days consultancy I just did with him a few weeks ago.

bowlhead99

You say you agreed to "work off a portion of the equity". That implies you were receiving something valued at the value of your work. You said you had previously agreed that £20k was the value of the equity, and you were going to pay half in cash and work off the rest, correct? Whether they pay you in cash or in shares for your work, you can produce an invoice for that work? Why wouldn't you, if you want to document that you gave something in consideration for the shares that he gave your?

You call it an 'investment in your future with your time'. So what was that time worth?

- Is the time worth £10k, in which case that is both your income and the cost of the investment?

- Or is the time worth nothing - in which case you don't have any income but you have shares which you were allowed to acquire for nothing because the company was valued at 0p a share (having no real assets other than those needed to settle anticipated costs and expenses, and having no customers or profits).

If the latter, and the company was indeed worth 0p a share in April, it is a) strange that you would pay £10,000 cash for part of your 25% of it and b) now decide that the business is worth £84k when you wanted to exit 25% of it in July only a matter of weeks later.

You then said

To turn around and demand invoices for what was an agreement between two friends seems rather disingenuous to me.

Whether the people making the business agreement are friends or not, I don't think that it is 'disingenuous' (synonyms: insincere, dishonest, untruthful, false, deceitful, duplicitous, lying, mendacious; hypocritical) to want to formally document the agreement.

Doesn't your ability to demonstrate that you are an owner of the company and be able to sell it, rely on things being documented properly? Do you not want any paperwork because you're mates? Don't see how that helps you, as the guy who did not have a controlling share of the business, and is no longer involved in the business, obtain your proper entitlements, especially if you're no longer mates. If you hold none of the cards, surely you would be as keen as possible to play ball and get everything done by the book and ASAP.

Or are you hoping that if somehow you don't complete any corporate records, the guy will just give you £10k cash in hand and you can claim you never did any work or earned anything from him or bought and sold a business and forget to tell the tax man because the money he gave you was just a gift between friends?

Particularly considering he paid me just over half of the amount he wants invoiced (equivalent day rate). For a few days consultancy I just did with him a few weeks ago.

So he is giving you new work and willing to pay for it at reasonable rates. OK. So the relationship is not completely shot to hell. So what is wrong with completing the paperwork for the first piece of work and getting paid out and drawing a line under the company share stuff?

Whether the paperwork you are looking to complete or that he is looking to complete is the right paperwork, who knows. You or he or both of you could both go and take legal and accounting advice so that everyone understands it properly and nobody does something wrong in the eyes of the taxman or company law which comes back to haunt you or him or the company in future. However, for the amounts involved I presume neither of you are going to go down this route.

So if you get your cash by doing what he asks or you have to take him to court if you don't want to do what he asks, it sounds easiest to play ball and then either take advice later or not take advice later at your own risk in terms of doing your tax returns.

One final thing, you said earlier "I also have a copy of the email that was sent to our accountants asking to distribute 25% of the equity into my name as a company director."

Does the reference to 'as a director' mean he was telling the accountants in his capacity as a director, to distribute the shares to you... or does it mean he was telling the accountants to issue the shares to you, who was also a director at that point? Directorship (running the company for the shareholders who own it) is separate and distinct from being a shareholder in a company and one does not follow the other.

The reason I ask is that if you were once a director you would want to make sure that you have resigned that position and that has been acknowledged and you are formally removed, and that they have done the paperwork to tell companies house you are no longer an officer of the company. Otherwise you are only going to get headaches and liability down the line with no upside (unless being a director gives you any clout to help you get your full exit proceeds, which I doubt)

max00d

Thanks again for your reply. Again you make total sense. It's good to get that level of input from a neutral perspective.

Following this thread I got in contact with him today asking him to outline his position and exactly what I needed to invoice. His reply was that the only way I was going to get any more money from him was to invoice for the work done as part of the buy-in. It has nothing to do with balancing liabilities within his company. Furthermore the unit rate he is demanding is 25% lower than the agreement we had spoke hands on in April of this year.

Looking back over all correspondence he has been very careful not to admit to the outstanding 11k per se. Only that his accountant advised him that he needs an invoice. This is despite conversations to the contrary. And I do have a recording of him admitting the liability of the 11k and that he would pay me in full.

I don't have a copy of the transfer of shares I signed for the 21k and don't know how I stand legally. Is there anything that I can demand from him in terms of proof of this transfer of shares for the agreed amount. I feel this is the key. But wouldn't put it post him to refuse and say the document does not exist. When I clearly outlined my position stating dates and times of conversion that I have recordings of and that I would stake my life on his reply is that 'my recollection of events is inaccurate'.

Foolishly I trusted him as he is my brother in law. Now I don't know what to do.

mgdavid

max00d wrote: »

..... Now I don't know what to do.

first thing is to make copies and backup copies of those recordings, plus scans of any relevant documents, and store them in diverse safe places.