Valuing employment-related securities
Produced in partnership with Renu Birla
Valuing employment-related securities

The following Share Incentives guidance note Produced in partnership with Renu Birla provides comprehensive and up to date legal information covering:

  • Valuing employment-related securities
  • The need to value employee shares
  • Money's worth basis of valuation
  • Market value basis of valuation
  • Market value basis of valuation—quoted shares
  • Market value basis of valuation—unquoted shares
  • When does HMRC SAV get involved?
  • Minority valuations
  • HMRC/BVCA memoranda—management interests in private equity and venture capital
  • Hindsight when valuing shares
  • more

The need to value employee shares

When considering offering shares to employees, whether directly and/or pursuant to a share plan, employer companies and company shareholders need to consider what the value of the shares may be for a number of reasons including:

  1. to calculate how many shares they may need to achieve their objectives (valuing existing shares can often lead to a need to sub-divide existing shares and/or create a new class)

  2. to assess the amount of tax that may arise on the acquisition of the shares and any subsequent chargeable events (for example, for PAYE purposes and/or to allow an employee and the company to decide whether to enter an election in relation to restricted shares) especially in relation to:

    1. convertible securities

    2. restricted securities

    3. securities with artificially depressed/enhanced market values

    4. securities acquired for less than market value, and

    5. securities disposed of for more than market value

  3. to provide information to an employee acquiring restricted shares and the employing company who is considering entering into a section 431 joint tax election

  4. to ensure the provision of a consistent methodology and process where the company or employee benefit trust are operating an internal market allowing the sale and purchase of shares (see Practice Note: Creating a market for shares in a private company)

  5. to ensure that the number of shares