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Old 12-27-2012, 10:43 PM   #1
kaylastonor
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UK Restricted Stock Units - Murder motive

Anyone who understands stock options?


This is what I think I can do:

Several years previously the owner/major shareholder of a newly public company is loaned money by an employee/friend to help the business through a difficult time.

They agree the loan will be paid back through Restricted Stock Units.



Preconditions are:
  • That the earnings per share must reach a certain level.
  • That the RSU cannot be exercised before a certain date. (ie. time and performance related - can I do that?).
  • The employee may have left the company but will still be a limited voting shareholder on the board, but once the date is reached the employee will acquire full voting rights.
  • The tax will be paid on vesting - ie. this date, assuming the earnings per share have reached the required level (ie. the company accounts must have expensed the tax withholding. I presume those shares are purchased back by the company and the money handed to the HMRC?).
  • That before exercising right to sell the employee must inform the company of their intention to sell one week before selling.
Is this a valid scenario?

My objective: I want the former employee's 'letter of intent to sell' to panic the CFO of the company into murdering employee before the date is reached, because he's hiding that the company is in financial trouble and he hasn't budgeted for these RSU's being exercised so quickly, he only budgeted to pay the tax portion. The former employee had always stated they wouldn't sell but their circumstances have suddenly changed.

I want the voting rights set up that way to aggravate the new major shareholder/CEO into wanting to get the former employee out of his company - giving him a motive for murder, too but really he wants to force her to sell, he doesn't know the CFO has messed the company accounts up so badly.


Adding an additional question: Could this still work in a private limited company? Do RSU's apply or would they just be a private distribution of shares arrangement?

Hope that all makes sense!

Last edited by kaylastonor; 12-27-2012 at 11:36 PM. Reason: Adding another question re limited companies
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Old 12-27-2012, 11:03 PM   #2
King Neptune
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Except for the matter of "That the earnings per share must reach a certain level" it is not unreasonable, but I am much better acquainted with how things are n the U.S. than in the UK. Generally, restricted stock is just restricted as to who can own it and when, if ever, it will be converted to publicly traded stock. It is possible to have stock that never converts to being publicly traded. Some restricted stock has greater voting power than other, and you might want to have thois guy's stock have five votes per share, or something; that would make it more reasonable for the CFO to want the guy out of the way. And rem,ember that the company wqill have to have the right to buy the stock at a preset amount in the case of the death of a holder.
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Old 12-27-2012, 11:21 PM   #3
kaylastonor
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Quote:
Originally Posted by King Neptune View Post
Except for the matter of "That the earnings per share must reach a certain level" it is not unreasonable, but I am much better acquainted with how things are n the U.S. than in the UK. Generally, restricted stock is just restricted as to who can own it and when, if ever, it will be converted to publicly traded stock. It is possible to have stock that never converts to being publicly traded. Some restricted stock has greater voting power than other, and you might want to have thois guy's stock have five votes per share, or something; that would make it more reasonable for the CFO to want the guy out of the way. And rem,ember that the company wqill have to have the right to buy the stock at a preset amount in the case of the death of a holder.
That's an idea - increasing votes per share.

I presume the company could preset that price to buy back in case of death at 0?

Re earning per share: the UK seems to be able to set conditions regarding company performance: http://www.macworld.co.uk/apple-busi...newsid=3359992

I was unsure if I could make it a mix of performance and dates but the link above seems to suggest I can.

But am I right in thinking that the moment the former employee exercises their right to sell, the company needs to 'expense' the agreed price? Not just the tax. (I'm struggling with the terminology to express this.) So if the CFO hasn't budgeted for the former employee selling, the company will suffer financially for this oversight?

Thanks for the reply!

Can I also add to the question: Could this still work in a private limited company? Do RSU's apply or would they just be a private distribution of shares arrangement?

Last edited by kaylastonor; 12-27-2012 at 11:35 PM.
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Old 12-28-2012, 04:52 AM   #4
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Quote:
Originally Posted by kaylastonor View Post
That's an idea - increasing votes per share.

I presume the company could preset that price to buy back in case of death at 0?
There can be all sorts of restrictions, and that one would be unusual.

Quote:
Re earning per share: the UK seems to be able to set conditions regarding company performance: http://www.macworld.co.uk/apple-busi...newsid=3359992

I was unsure if I could make it a mix of performance and dates but the link above seems to suggest I can.
Yes, performance can be a criterion for the exercise date. That isn't unusual.

Quote:
But am I right in thinking that the moment the former employee exercises their right to sell, the company needs to 'expense' the agreed price? Not just the tax. (I'm struggling with the terminology to express this.) So if the CFO hasn't budgeted for the former employee selling, the company will suffer financially for this oversight?
How the stock would be handled on the books depends on how it was set up. It wouldn't be an "expense", but they might have to change where it appears on the capital ledger. That amount might also be altered. How it is handled in changing the capital structure depends on what it was to start with (partnership, professional corporation, or what) and on what was being sold off. If the three founders contributed some part of their stakes into bonus shares for employees, then there would be no expense just a change inownership. Ifv the bonus shares are a special issue of capital stock, then the capital structure would change when they were issued and when they went public and when they were sold. If they were a special issue of preferred stock, then they could have extra votes and a guarenteed dividend.


Quote:
Can I also add to the question: Could this still work in a private limited company? Do RSU's apply or would they just be a private distribution of shares arrangement?
I don't know what a private limited company in the UK would be able to do, and they vary from state to state in the U.S. The most flexible ownership situation would be a privately held corporation; although limited partnerships can do pretty much the same things.

You might want to talk with a solicitor who handles incorporations. Yoiu might be able to find a website for whatever agancy handles corporations in the UK , and that might give you some idea as to which one would work.

If this is just a plot device, then you shouldn't make it any more complicated than necessary. Just go with a privately held corporation. Such corporations can be very, very large and play rather fast and loose with some things, until they go public, if they ever go public.
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Old 12-30-2012, 01:18 AM   #5
kaylastonor
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Thank you again for the advice in your reply.

Quote:
Originally Posted by King Neptune View Post
I don't know what a private limited company in the UK would be able to do, and they vary from state to state in the U.S. The most flexible ownership situation would be a privately held corporation; although limited partnerships can do pretty much the same things.

You might want to talk with a solicitor who handles incorporations. Yoiu might be able to find a website for whatever agancy handles corporations in the UK , and that might give you some idea as to which one would work.

If this is just a plot device, then you shouldn't make it any more complicated than necessary. Just go with a privately held corporation. Such corporations can be very, very large and play rather fast and loose with some things, until they go public, if they ever go public.
I need the fear of upsetting creditors to drive a character's actions.

If it's a private corporation, and the former employee sold to another investor, then the company will just have a new shareholder. But if the company buys back the shares with capital, then its value will be diminished, it's share price accordingly diminished, and it could cause creditors to worry. This would work for the story.

Similarly, if the company is public, then selling a large number of shares being sold might drive the share price down, thereby upsetting creditors, which would also work for the story.

Do you see any problem with either of those scenarios?

Thank you again.
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Old 12-30-2012, 10:13 PM   #6
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Quote:
Originally Posted by kaylastonor View Post
Thank you again for the advice in your reply.



I need the fear of upsetting creditors to drive a character's actions.

If it's a private corporation, and the former employee sold to another investor, then the company will just have a new shareholder. But if the company buys back the shares with capital, then its value will be diminished, it's share price accordingly diminished, and it could cause creditors to worry. This would work for the story.

Similarly, if the company is public, then selling a large number of shares being sold might drive the share price down, thereby upsetting creditors, which would also work for the story.

Do you see any problem with either of those scenarios?

Thank you again.
The second is fine. Selling more stock makes the outsanding stock less valuable. But if the private corporation buys stock from former employees, then the total capital of the corporation bwill be unchanged; capital will be changed from cash to stock. That shouldn't scare creditors.

If you want to scare creditors, then you might have a class of preferred stock that gets someoutlandish dividend, but only a few shares of this class are outstanding. But there is one person who is holding options to buy at an amount equal to two years dividend, and he is blackmailing the corporation into buying the options at a reasobnable (to him) value.

Any way that you are doing this will have to reflect reasonably the value or size of the corporation. If the corporation has a new progfit of one million a year, then corporation is probably worth no more that thirty million. If it had a net profit ten times as large, then it would be woth ten times as much. If it is an early stage corporation that is planning an IPO in the future, then the founders probably hold more than three quarters of the corporation; thus leaving less than one quarter available for an employee stock option plan. With the ownership split like thatit would be difficult for one employee to have so many options that he would make much difference, unless he weere one of the founders and owned 25% of the corporation. For that reason you might want there to be dissension among the founders and one of them is thinking about sell9ign his piece to a competitor, or something like that. The would mean that you would have to make the CFO one of the founders, which would make sense.
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Old 01-10-2013, 03:34 AM   #7
kaylastonor
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Quote:
Originally Posted by King Neptune View Post
The second is fine. Selling more stock makes the outsanding stock less valuable.
Sorry to take so long to reply - just reached this point in the story and came back to check your advice.

I think I will stick with the second scenario. My references will be vague and I won't be divulging the company's value or actual breakdown of shares. Thank you again for all your advice!
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Old 01-10-2013, 04:09 AM   #8
King Neptune
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God luck with it. I have read works of fiction in which the author confused stocks and bonds, and made other huge errors, but keeping it vague is a good way to handle it.
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