Exercising Share Options

[Prunella]

Hi,
I worked for a start-up company years ago and I was issued with a number of stock options. The same company is currently being bought out by another UK based company and as a option holder I have been issued with 3 choices but only been given 4 working days to decide what to do and return the documents or stand to lose any entitlement.

the choices are:

1) exercise and sell the options; the would result in a thre part payment over two years. The first payment would be immediately and is being paid to cover any tax liabilities I would have. The company advised me that I would be liable to income tax at the higher rate and also capital gains.

2) do nothing and lose my entitlement

3) exercise but opt not to sell; I have been informed that the shares may still be bought under drag provisions or alternatively if not purchased I would end up being a minority shareholder in an illiquid company with no reasonable prospect of realising value.

The company are advising me to take the first choice but the first payment is all due in tax and therefore there is very benefit in for me.
Can anyone advise what would most likely happen if I went with option C..

I need to have the document returned by Wed or I will lose it all so I don't have enough time to seek full legal advice.

Thank you,
caroline

 

[Brendan Burgess]

It is very difficult to make such a decision under pressure.

Your description of the first option does not sound correct. You should not be paying income tax and capital gains tax especially if you get no benefit.


You should contact other people in a similar position to yourself and find out what they are doing. If necessary, you should get legal and tax advice independently of the company.

Brendan

 

[extopia]

You should not be paying income tax and capital gains tax especially if you get no benefit.

The grant of the options surely constitutes a benefit in kind so would there not indeed be a tax liability based on the difference between the value of the shares acquired and the option price?

And CGT might also apply if the share price increases between the time of acquisition and the time of selling?