company shares as part of employment package- help!

[LilyJT83]

Hi,

I'm due to start a new role at a company I've worked at for years. As part of the package I'll be getting a 10% shares in the company. It's a small business but plans to grow and sell over the next 5 years. My new employment contract says very little about the shares, just that the majority shareholder has drag-along rights (fine) and that I have to return all shares on termination of employment.

What should I have in there to protect me? There's nothing to stop them making me redundant and then selling a few months later so as to avoid paying me my 10%. Should I add something like 'if made redundant or sacked then shares remain active for 12 months after leave date'?

I do trust the company owner but I also know things/people can change when big sums of money come in to play.

Is there anything else I need to consider or add? I just feel very exposed in the contract as it stands.

Many thanks!

There is probably lots of law, but I guess it depends on how much of your salary is being replaced by shares. If it's a major part then yes do chris check. If it's a nice bonus on top then decide what's it worth.

What's the point in having shares if you have to give them back when you leave? Effectively you have been given nothing?

"return all shares on termination of employment"??? that is very odd - you sell them back at then- current value? or you hand them back for nothing? there should be detailed leaving provisions outlining your entitlement to sell them while employed / on termination of employment within 5 yrs / after 5 yrs / dismissal. If you're sacked then you don't usually get teh value of them, however any claim for unfair etc dismissal would obviously deal with the shares as part of it.
10% of the shares in the company sounds an awful lot for an employee; check whether it's 10% of a particular class of shares perhaps? are they entitled to a dividend?

Thank you so much, this has given me a lot to consider.

I think the idea is that I help grow the company and get a share when it's sold, but if I leave before that point then I get nothing. I hadn't considered this was strange, I think I need to dig deeper on it.

Yes I think it's the leaving provision I'm particularly concerned about.

It doesn't mention anything about dividends...

What kind of shares are they? If it's a tax effective employee scheme then it's usually compulsory to return the shares as you would no longer be an employee.

Most common share option for small companies is the EMI scheme. Does this sound like what you have? www.out-law.com/en/topics/tax/share-plans/enterprise-management-incentive-emi-options/

No hidden agenda - just an incentive to help the founder build the business and you share the rewards. If you were to leave before the agreed period, why should you get to keep the shares?

If you were to leave before the agreed period, why should you get to keep the shares

because they are in lieu of wages maybe?

because they are in lieu of wages maybe?

No - and it's wrong to think of shares like that. Shares are an ownership stake in the firm. Value goes up or down depending on firm performance. It's a way to align (usually key but sometimes all) employees with company's goals.

If you have ex employees with shares, why should they benefit from share growth they don't contribute to? It's different if someone is investing their own cash to buy the shares but it sounds like in this case it's part of the employment package. (so ceases, like salary, when employment ends)

Just be aware that unless you get thus written up legally they're worth nothing. I had a bonus scheme that was replaced by capital reinvestment in growing the business and would be repaid as shares. Small business. Implicit trust in the owner. He's ceased trading. I'm glad in the end I wasn't written up the way I first asked as I would be liable for debts. As it is I'm waiting for the govt insolvency service to pay out on holiday and lieu of notice. They'll also be settling my redundancy as there isn't
Enough in the pot.

In that scenario, travail a share purchase agreement would not have made any difference. If the shares are worthless then you get nothing. That's how it works.

Anyone offered shares should read the paperwork and make sure they understand how it works. Generally, employee share schemes offer a great deal but the value can go down as well as up.

Sorry for the slow response and thank you all for the advice.

Olly yes it's just an incentive to help me grow the business and I'd be happy to hand them back if I left of my own volition prior to sale. Thank you for the link, I'll have a read of it.

They're not in lieu of wages, they're an additional incentive. I'll be the only employee in the business with shares (I'm the most senior after the founder).

I've decided to get a lawyer to have a look at the contract for me after reading all your posts and advice, so thank you for steering me in that direction.

That's wise. Once you have the paperwork seek out a lawyer who specialises in share schemes. Kind of things you might want to ask:

1. Under what terms can you sell the shares? (i.e. what are the restrictions?)
2. What rights are attached to the shares (i.e. voting? nonvoting?)
3. Is there a dividend? How is it payable?
4. What are the tax liabilities of share holding and share sale?
5. What are the good leaver/bad leaver definitions and conditions?
6. How will shares be valued?

Good luck with the business!

Thank you for the list, incredibly helpful!