Restricted Securities - Relevant Restrictions Flashcards
(16 cards)
What are the categories of relevant restrictions?
1) Forfeiture (forfeiture restriction).
2) Limitation on a right over, or conferred by, the securities or interest (limitation restriction).
3) Disadvantage suffered by employee, holder or connected person (disadvantage restriction).
If a restricted security falls under one of the relevant restrictions, will with mean it is an employment related security?
No, ignoring the employment part of the equation, the security must also not fall within one of the two categories of exceptional types of provision.
How wide is the definition of what could lead to a relevant restriction? Could an unwritten agreement be a relevant restriction?
Where is the legislation for this?
It is very wide. Any “contract, agreement, arrangement or condition” could be a relevant restriction.
Yes, an unwritten agreement could be a relevant restriction.
This is set out in section 423(1)(a), ITEPA 2003.
What is the definition of a forfeiture restriction?
A forfeiture restriction is any restriction under which:
1) Means the securities holder will lose the beneficial entitlement as a result of a transfer, reversion, or forfeiture.
2) Means the securities holder will not, or may not, receive an amount for the securities at least equal to their unrestricted market value at the time of transfer, reversion or forfeiture.
Where is the definition of a forfeiture restriction?
Section 423(2), ITEPA 2003.
Will a provision in the articles that provides for “fair value” to be paid when an employee leaves employment mean that they are not restricted securities?
No, because it is still possible for the employee to receive less that the unrestricted market value.
Will an arrangement which means that shares will revert back to an EBT for the lower of the price paid and market value mean that the share is a restricted security?
Yes.
What is the company law meaning of forfeiture?
This is when nil paid or partly paid shares are transferred for no consideration, following a call.
What is the definition of a limitation restriction?
This is any restriction on:
- The freedom of the holder of the employment-related securities to dispose of them or the proceeds of their sale.
- The right of the holder of the employment-related securities to keep the securities or the proceeds of their sale.
- Any other right conferred by the employment-related securities. [Not sure what this entails exactly!]
What are the examples given by PLC of limitation restrictions?
- A lock-in requiring shares to be retained for a certain period after acquisition.
- A requirement to place in an escrow account the proceeds of sale of shares acquired on exercise of options during the sale of a company.
- An agreement under which the employee agrees to waive voting rights or dividends.
What is the definition of a disadvantage restriction?
This is any restriction under which the disposal or retention of the employment-related securities, or the exercise or any right conferred by them, may result in a disadvantage to:
- The holder of the employment-related securities.
- The employee (if not the holder).
- Any person connected to the holder or the employee.
Which of the types of restrictions is (probably) the catch-all kind?
The disadvantage restriction.
How many exceptions are there to the restrictions that would otherwise make a security or interest a restricted security?
3
What are the exceptions to the restrictions that would otherwise make a security or interest a restricted security?
Where are the first two exceptions set out in the legislation?
1) Forfeiture for non-payment of calls on unpaid or partly paid shares
2) Compulsory transfer on ceasing employment for misconduct.
3) Restrictions on dealing that arise from legal requirements (such as the Market Abuse Regulation (MAR)) or the rules of any exchange on which the relevant securities are traded.
Section 424, ITEPA 2003.
Where is the exception regarding the restriction on dealing that arise from legal requirements (such as the Market Abuse Regulation (MAR)) or the rules of any exchange on which the relevant securities are traded set out?
This is not set out in legislation, but is derived from interpretation and HMRC guidance.
There was a historic exception, what was it?
For provisions for the redemption of securities (i.e. a restriction requiring that a restriction is deemed in certain circumstances).
