UK Buying shares from former employee (England)


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Hello



Not sure if I’m in the right place but here goes. I am a director/shareholder in my family business, we recently realised a former employee owns 100 shares in the company. We didn’t think it had gone through at the time and the employee left shortly after them being issued (it was done more as a nice gesture for him by my Mum shortly after the business was formed).



The shareholding is currently: 2500 shares (my Mum) 250 shares (myself) 100 shares (my Step Dad’s father) 100 shares (former employee)



We have recently tried getting him to sign them over but he has taken advice from his accountant and wants the value of the shares. I obviously don’t want to give him anything or at most the bare minimum as he hasn’t earned it (we are an electronic security business and he was meant to do the electrical side as he’s an electrician but it never worked out and we stopped doing electrics after he left).



How would we go about valuing his shares? We have £750k in cash and own 3 vans @ around 15-18k total. The only other assets are tools and minimal stock.



Also, how could we down value his shares? Could we issue more shares to myself/my Mum and also make my Step Dad (currently just an employee) a director and issue him shares. Ideally we would like to get to the point it is equal shareholding between myself, my Mum and my Step Dad.



Appreciate any help/advice?
 
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Joined
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OK, well...when it comes to valuing shares of a business, there are a lot of ways of skinning the cat. (Not to the cat, but that's a separate discussion.) Since you're a corporation and your shares aren't publicly traded, I'd say the most obvious way is to divide the total shareholder's equity by the 2,950 shares outstanding to get the value per share. That would be a defensible value for the shares, and arguably a reasonable minimum value--the "cup of builder's tea and some Walkers shortbread offered for the sake of manners" book value.

The argument will come on what to include in "shareholder's equity". On your side, you'll want to limit the amount of equity to contributed capital only (Common Stock, plus APIC if your shares have a par value). On his side, he'll want to include Retained Earnings, if there is any, and exclude Retained Loss, if there is one.

IANAL, I'm not in the UK, and I don't know UK law, so maybe there's a legal minimum you'd have to pay. I'd say, pick a close date, create your balance sheet, figure out the cost, run it by your solicitor, and make him an offer.

As for diluting his shares.....how badly do you want him to fight you for more money, or do you want him to go away? Issuing shares to dilute his will only cause him to get a solicitor and sue. And he might have a case (see "IANAL" above). Do you really want him to cause you more of a headache? Common sense says: find a defensible value for the shares, pay him, and show him the door.
 
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