Offered very small share of startup I work for. Implications?

Redditor

Pros? Cons?

I have no business background myself and I am having trouble digging up what the implications of this are.

If the company ever turned a profit, would that effect me? Would it only really effect me if I managed to sell it in the future, assuming anyone wanted to buy it?

Any disadvantages?

Peterdalkey

It would only affect you if sold your shares, you would have a Capital Gains Tax liability on your profit made on the sale of the your shares.

Redditor

If the company survives long enough take a stab at making a profit, would it be the possible that some of the profit not ploughed back in to the business would go to me, as a (small) part-owner.

That sounds like a stupid question as I read it back, but I really don't know.

lucky john

http://www.citizensinformation.ie/en/money_and_tax/tax/tax_on_savings_and_investments/employee_share_option_schemes.html

I like the idea of an employee having a little bit of the company and I don't see much con's really. It fosters a bit of ambition for your company as well as yourself.

As peter said, the tax mans cut is the one negitive. How you receive the share or shares seems to have a bearing on the tax treatment if you ever decided to cash in. It might be worth your while posting on the accountancy forum and see what comes up there http://touch.boards.ie/forum/872 or even visit one just to give yourself the best advantage possible.

lucky john

Redditor wrote: »

If the company survives long enough take a stab at making a profit, would it be the possible that some of the profit not ploughed back in to the business would go to me, as a (small) part-owner.

That sounds like a stupid question as I read it back, but I really don't know.

Well the company could pay the share holders a dividend if things went well. You should get a % pay out directly related to the share holding you own. It would be at the depression of the directors though whether they pay out or reinvest. If it's a start up you might have to wait a while for a dividend.

Redditor

The company isn't publicly traded. It's possible the owner means a profit share, as described the in the citizen's information link above.

I know it is obvious that I should talk to him some more, but I really am clueless on the subject. Even though he is trying to give me incentive to stay and to help build the company, I wouldn't like to go into that conversation and need pretty much everything explained.

I really appreciate the replies. I am reading the pdf about the profit share from the revenue site.

lucky john

Nothing wrong with listening to what they say and taking time to consider it. If the share is on top of your wage and free there's not much downside.

Redditor

lucky john wrote: »

Nothing wrong with listening to what they say and taking time to consider it. If the share is on top of your wage and free there's not much downside.

Basically, the reason I am asking here is because at the outset, I didn't really think it would mean a profit share and thought perhaps if I left or lost my job or whatever and had this share it could possibly effect dole payments.

Mostly I wanted to cover my bases and be sure I understood what I was agreeing to.

Peterdalkey

Owning shares does not preclude you from claiming dole (JSA) unless you are a proprietary director ( a director owning more than 15% of the issued share capital). You really have nothing to worry about, especially as this is a start-up and it is likely to be some considerable time before your shares have any significant value.

Atomico

Peterdalkey wrote: »

It would only affect you if sold your shares, you would have a Capital Gains Tax liability on your profit made on the sale of the your shares.

lucky john wrote: »

http://www.citizensinformation.ie/en/money_and_tax/tax/tax_on_savings_and_investments/employee_share_option_schemes.html

I like the idea of an employee having a little bit of the company and I don't see much con's really. It fosters a bit of ambition for your company as well as yourself.

As peter said, the tax mans cut is the one negitive. How you receive the share or shares seems to have a bearing on the tax treatment if you ever decided to cash in. It might be worth your while posting on the accountancy forum and see what comes up there http://touch.boards.ie/forum/872 or even visit one just to give yourself the best advantage possible.

I would have said the OP would pay no capital gains if he sold his shares, since he didn't actually buy them but was granted them?

It is a bit hypothetical though since it will likely be a long time before he sees the return - if any.

endacl

Atomico wrote: »

I would have said the OP would pay no capital gains if he sold his shares, since he didn't actually buy them but was granted them?

It is a bit hypothetical though since it will likely be a long time before he sees the return - if any.

Would they not be a benefit in kind, and therefore liable to tax?

Atomico

endacl wrote: »

Would they not be a benefit in kind, and therefore liable to tax?

I don't think shares fall under that category, rather they relate to a share scheme or just being granted equity in a company (or soon to be formed one). Benefit in kind relates more to non-cash benefits like company cars, accommodation and other perks as far as I know.

Peterdalkey

Atomico wrote: »

I would have said the OP would pay no capital gains if he sold his shares, since he didn't actually buy them but was granted them?
.

just because the cost may be zero does not make them exempt from CGT. CGT is paid on the GAIN in value at the time of disposal!

pedroeibar1

Being granted shares is a great position to be in. Most employees do not have that luxury, and it can be highly profitable. Think of those who worked in the early days for Microsoft Google, Facebook, etc. – most made substantial profits on their holdings.

The employer most likely will have a handbook type document that will explain how things work. It is important that the scheme be approved by the Revenue, so this will ensure that tax liability can be minimised. There also should be a defined exit mechanism, i.e. to whom the shares must be sold when leaving the employer and – importantly – how the share valuation is calculated.

As others have said, there is little downside and the potential for big upside. Go for it!

Atomico

Peterdalkey wrote: »

just because the cost may be zero does not make them exempt from CGT. CGT is paid on the GAIN in value at the time of disposal!

True that! I would say though it all depends on the specifics of the scheme (if any).

pedroeibar1

Peterdalkey wrote: »

just because the cost may be zero does not make them exempt from CGT. CGT is paid on the GAIN in value at the time of disposal!

AFAIK the tax is actually Income tax, not CGT because most schemes are set up as share option schemes - so, when a person exercises the option and acquires shares for less than their market value it is treated as income and s/he is liable to income tax on the difference between the market value of the shares and the price paid (i.e. the option price).

Peterdalkey

I understood from the OP that he was being offered actual shares now, not options for the future. The end tax implications do vary with the circumstances.

antoinolachtnai

Peterdalkey wrote: »

I understood from the OP that he was being offered actual shares now, not options for the future. The end tax implications do vary with the circumstances.

If the shares are actually worth anything at present there will be an immediate tax implication if the op gets them for free.

The promoter will no doubt make the case that the business is at such an early stage and has so few tangible assets that the shares and the company are not worth anything. This is usually ok with revenue in a near start up situation.

This is a complicated area from a tax point of view, unfortunately and requires advice at some point.

There are also business issues. Will the op be expected to work for less money as a result of the holding? Does the shareholding have any real prospect of ever being worth more than, say, two years salary? How will the op ever get value for the shares even if they are worth a significant amount?

Peterdalkey

the chances are that the shares in a small start-up are presently worth shag all! Thus CGT would be payable on the full sale price, if that ever happens. Not at all complicated.

The OP has given no information whatsoever about the sector and whether the plan is to sell it on at any point, so any comment on disposal realities is just uninformed conjecture. The issue about impacts on employment terms are rather strange , on the basis of the info provided by the OP!

antoinolachtnai

With respect, the issue of how you will ultimately get a return of, or dispose of shares acquired in an unlisted business is always a critical issue in evaluating the situation. If there is no prospect or plan for getting value for the shares, then why bother with any of this? Share certificates are not keepsakes.

If the fine ladies and gentlemen of the Revenue Commissioners determine that this company has a value on the grant date, then income tax will be payable on the value of the shares immediately, not at the sale date. If the company has already attracted money investment of any scale or if it has any assets on its balance sheet, then Revenue will need to be convinced as to why they should allow a grant at a zero value. If it is planned to get investment, then the issue of the shares to the OP needs to be timed so that the investment does not result in an immediate tax bill. This is not complicated stuff if you have done it a few times, but if you haven't, and you don't know what you are doing, you will land yourself with a dirty big tax bill.

pedroeibar1

antoinolachtnai wrote: »

With respect, the issue of how you will ultimately get a return of, or dispose of shares acquired in an unlisted business is always a critical issue in evaluating the situation. If there is no prospect or plan for getting value for the shares, then why bother with any of this? Share certificates are not keepsakes.

If the fine ladies and gentlemen of the Revenue Commissioners determine that this company has a value on the grant date, then income tax will be payable on the value of the shares immediately, not at the sale date. If the company has already attracted money investment of any scale or if it has any assets on its balance sheet, then Revenue will need to be convinced as to why they should allow a grant at a zero value. If it is planned to get investment, then the issue of the shares to the OP needs to be timed so that the investment does not result in an immediate tax bill. This is not complicated stuff if you have done it a few times, but if you haven't, and you don't know what you are doing, you will land yourself with a dirty big tax bill.

You are quite correct, I did not bother responding to the earlier post due to the absence of accurate information from the OP and not wanting to get into a contest.
The beneficiary would be taxed on the value of the shares as 'income' - CGT happens only if/when the shares are sold and there is a profit. Whether or not the scheme is approved/unapproved by Revenue also plays in important role, as there can be PRSI and USC charges involved sooner rather than. That is usually why share options are used, frequently they are the most efficient way, which is why I mentioned them and also why I alluded to a an explanatory handbook

barneystinson

I have a feeling the poor OP if he comes back will be reading all this and going "what the...?!".

I have a feeling when he says start up, he means just that, and the shares in question are worth diddly squat.. so all of this speculation is pointless.

Peterdalkey

Mountains, molehills, red herrings and showboating all spring to mind. The OP was concerned in one post that his share ownership could affect his entitlement to dole payment!! It rather puts the original query in proper context.

pedroeibar1

Peterdalkey wrote: »

Mountains, molehills, red herrings and showboating all spring to mind. The OP was concerned in one post that his share ownership could affect his entitlement to dole payment!! It rather puts the original query in proper context.

That is bluster and ignores much of what has been going on in previous posts. This thread has long strayed from the OP question, has over 700 views, has consistently been near the top of the board which, for a ‘new’ topic shows the interest Boardies, and not just the OP, have in it.

The facts are very simple. Share acquisition by whatever means is fraught with tax implications. It would be a very stupid person (and an even more stupid employer) to wake up five years down the road and discover that there is a huge tax, USC and PRSI liability that could easily have been avoided with a little foresight.

barneystinson wrote: »

I have a feeling when he says start up, he means just that, and the shares in question are worth diddly squat.. so all of this speculation is pointless.

The notion that the shares are worth ‘diddly squat’ today actually reinforces the point made by me and some others. (Liabilities resulting from the greater difference between the acquisition and disposal values.)

No doubt those employees who were granted shares /options in Apple, Facebook, AOL, Microsoft all thought the value was minimal or almost nothing in their early days. By proper planning all minimised what would have been huge tax liabilities. Ill-informed and dismissive comment on potential tax liability is no help to anyone.

barneystinson

pedroeibar1 wrote: »

That is bluster and ignores much of what has been going on in previous posts. This thread has long strayed from the OP question, has over 700 views, has consistently been near the top of the board which, for a ‘new’ topic shows the interest Boardies, and not just the OP, have in it.

The facts are very simple. Share acquisition by whatever means is fraught with tax implications. It would be a very stupid person (and an even more stupid employer) to wake up five years down the road and discover that there is a huge tax, USC and PRSI liability that could easily have been avoided with a little foresight.
The notion that the shares are worth ‘diddly squat’ today actually reinforces the point made by me and some others. (Liabilities resulting from the greater difference between the acquisition and disposal values.)

No doubt those employees who were granted shares /options in Apple, Facebook, AOL, Microsoft all thought the value was minimal or almost nothing in their early days. By proper planning all minimised what would have been huge tax liabilities. Ill-informed and dismissive comment on potential tax liability is no help to anyone.

Ah stop digging a pompous hole for yourself will you! The 700 views could easily be racked up by the contributors and the other regular viewers of threads on this forum. I've viewed it every time there's a new (and even more self important) post.

If boards is the place that people, who are being offered a valuable shareholding, go for their tax advice, then they probably deserve the consequences!

How about we have a little wager on it - I'm betting the OP is being offered a shareholding with little or no value now, and the only potential liability is CGT on a disposal at some point in the future. What do you think his situation actually is?

Redditor

what the...?!

Peterdalkey

Redditor wrote: »

what the...?!

we share your pain!!