Exercising EMI options in private UK company - without paying for them

MaxBeesley · 19 February 2019 at 12:05PM

Wanted to check my understanding of how EMI share options work after vesting in a UK private ltd company.

I have a chunk of EMI share options that recently vested in a UK private ltd company. The exercise price is a nominal amount - think pennies rather than pounds. I understand that there isn't a 'market' rate as the shares aren't trading publicly, but after a recent fund raising round would I be right to assume the 'amount paid' price shown on a "Statement of capital following an allotment of shares" document at companies house, is the equivalent of what the shares are now worth?

I get that if I wish to exercise the vested shares, then in theory I should pay the company for the number of shares X the exercise price, but I don't have anywhere near the cash to hand to pay for them though.

Even if I did have that sort of money available, I can't trade them publicly so if I want to realise the value, someone has to buy them off me right?

I'm assuming the only two options are for another investor who wants to buy into the business to buy them from me (perhaps mediated by the company owners) or for the company to buy them back directly off me (assuming they have enough money in the bank to buy back their own shares)?

In a previous job, I worked for a publicly listed company so when my share options vested, a sort of chicken and egg process was used to sell enough of my shares to pay for the shares I was buying and then selling immediately.

Can the same approach be employed in a private company? I can't quite get my head around where the money would come from....

sparkermarketing · 19 February 2019 at 1:13PM

What is the "exit strategy" of the company founders/majority shareholders and board of directors?

At some point in the future, they will want to get out of the company - either through an acquisition by another (bigger) company, or a listing on the stock exchange, or private sale to a family member, or they could simply decide to close the business down in 5 years time. The value of your shares will be decided at that time.

You need to understand the long term aim of the business before you can make any investment decisions, just as you would before investing into any venture.

Doshwaster · 19 February 2019 at 1:49PM

Whenever I've gone through this kind of exercise of share options before the business usually "lends" you the money to buy your options and then takes the money off the proceeds before giving you the outstanding amount.

So if your option price is 50p and the market price 500p you effectively get 450p (minus share dealing costs) without having to put any money up front.

The tax treatment of such options is very complex and depends on how the share scheme was structured so you would be need seek professional advice.

MaxBeesley · 20 February 2019 at 10:53AM

Thank you both. Exit strategy of owners/long term is irrelevant as I'm looking to realise a significant value on the options sooner rather than later to fund house purchase. I may hold to a fraction of the full amount, but the known cashflow now is more attractive than a possible exit sometime in the future.

So regardless of the sequence of buying/selling the shares, somebody still has to come up with actual cash to purchase the shares, either an outside investor putting more money in, or the company raiding the cash in the bank for the market value (less the exercise cost)?

Doshwaster · 20 February 2019 at 12:06PM

That's right. As it is a private company there is no open market for shares so you cannot sell unless someone is willing to buy.

sparkermarketing · 20 February 2019 at 5:45PM

MaxBeesley wrote: »

Thank you both. Exit strategy of owners/long term is irrelevant as I'm looking to realise a significant value on the options sooner rather than later to fund house purchase. I may hold to a fraction of the full amount, but the known cashflow now is more attractive than a possible exit sometime in the future.

So regardless of the sequence of buying/selling the shares, somebody still has to come up with actual cash to purchase the shares, either an outside investor putting more money in, or the company raiding the cash in the bank for the market value (less the exercise cost)?

You can't realise the value of the shares until someone is willing to buy them from you, which is unlikely without some bigger strategy that the company is working to - which you have no control over.

Ask someone who sits on the Board what the strategy is, or ask if they want to buy the shares from you. Or just hold onto them and wait and hope for the best.

Exercising EMI options in private UK company - without paying for them

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free