Saturday, September 14, 2019

What to Consider when issuing your company’s shares to employee?


What to Consider when issuing your company’s shares to employee?

It is common for an owner of a private company (including family- owned companies) to issue company’s shares to staff in order to inter alia attract and or retain talented employees or align their interests to those of the owner.

No matter that motivation behind such a scheme, issuing shares to employees offers many benefits to both the owners of the company and the employees. With careful planning, clear communication, and thoughtful drafting of employment and shareholders’ agreements, these arrangements can provide great benefits to both parties. In the unfortunate situation where the business relationship ends, advance planning will allow the valuation issues to be settled in a clear and transparent manner, while minimizing potential disputes and costs.

Some of the areas where disputes may arise in such employees share ownership scheme s include:
(a)              The types of shares that will be issued or transferred to the employee;
(b)              The market value of these shares at the date of issue;
(c)               How the shares will be paid for, as well as the tax implications;
(d)         Whether the redundant assets or liabilities (like existing shareholders' loan) will be factored determining the fair value of these shares;
(e)              How the shares will be valued on termination of the business relationship.
In most cases, the owners of the business or the board of director may wish to issues shares to the employees without losing control of the company. Therefore, though these share will entitled to participate in the company's profitability through dividends, they holders may not be granted voting rights.   To achieve this, the board would be obligated to create different classes of shares.  In company law, if a company has different classes of shares then different rights can be ascribed to those different classes as regards payment of dividends, voting rights, even procedures such an issuing new shares or transferring shares.

In order to effectuate such a transaction, a company can re-designate its existing issued shares as 'A' Ordinary Shares and issue new shares called 'B' Ordinary Shares to qualifying employee(s).  Such an assignment may involve amendment of existing articles of association or even adopting brand new articles of association with such provisions. 

In our above example, the 'B' shares would have the rights to dividend (that is, the board would be able to decide to pay one amount on the ‘A’ shares and a different, or no, amount on the ‘B’ shares). Further, the 'B' shares would be not be entitled to shares in any surplus left after repayment of the shareholders in the event of the company being liquidated, otherwise sold to third parties.

Further, if the holder of 'B' shares decides to leave the company’s employ (as an employee and/or as a director) they will be obligated to offer their shares for sale, with any share transfer being at the discretion and control of the board. Moreover, in default thereof within a given period after ceasing to be an employee, the company is bestowed the powers to effect the transfer on their behalf (this is called a “deemed transfer provision”, and ensures that shares do not pass outside the company’s existing shareholders without the approval of the Board and/or the other shareholders).


If you would want to issue shares to your employees or appoint any of your employee as a new director with a right to acquire shares in your company, or to discuss the options that are available, please do not hesitate to contact me via mainacy@gmail.com 


Monday, September 24, 2018

Family Estate Planning

Estate Planning

Estate planning is a legal process of deciding what should happen to your estate or assets in your die or become incapacitated, and taking requisite legal set to ensure that your decisions are effectuated. It includes the process of anticipating and arranging, during a person's life, for the management and disposal of that person's estate during the person's life and at and after death, while minimizing potential management or tax exposures.

I have an experienced team of professionals who can assist you in all matters or issues related to estate planning as well as in probate and administration matters in accordance with the Kenya Succession Act related to estate planning as well as probate and administration.   

Our services offerings include:

  • Drafting of a Family Constitution;
  • Drafting of a Shareholders' agreement in line with IFC Handbook on Family Owned Businesses;
  • Aligning your company's Memorandum and Articles of Association to the shareholders' agreement;
  • Transfer of family properties to a family holding company (for ease of administration and tax efficiency) and procuring the requisite tax exemptions on transfer of family properties such a vehicle;
  • Creating of an effective group structures (where there are more than one companies);
  • Company secretarial issues;
  • Corporate governance advisory;
  • Executive Managers/directors' contracts and their remuneration structure including HR Manual;
  • Wills and family trusts;
  • Set up of a Family foundation or Charity;
  • Planning and executing a Succession Planning Strategy.
  • Succession Planning
This in undoubtedly the most important business decision that you can make as business owner, and undeniably the toughest. For a family business, succession is a once-in-a-lifetime decision. Perhaps no undertaking has as much potential to exacerbate the special stresses – or, conversely, highlight the special advantages – of operating a family business.

 

Why come to think with us?

And as if the business, emotional, legal and technical issues weren’t thorny enough, consider this daunting fact: only about 30 percent of family businesses survive into a second generation.

As shy as many families may be to tackle the issue of succession planning, the health and longevity of a family business depend on a well-executed succession planning – developing a robust plan and communicating the results to the right stakeholders in a timeous manner. Doing so will increase the likelihood of your business enduring beyond the leadership transition, delivering lasting value to your family.
 

Why come to think with us:

Succession Plan and Strategy
We have a professional legal and business-minded team dedicated to helping family business owners develop an effective succession plan. Further, we shall also assist you in each step in the execution of the plan, so that the whole process runs as smoothly and efficiently as possible.

Sale of the business.
If a sale is the best option, we work with you to get the best price for your business by identifying the right buyer, while respecting your confidentiality.
 

Tax-efficient structuring
Succession planning is one area where your leverage tends to diminish with time. The decisions you make will affect the future of your business, customers, employees, community and, most importantly, yourself and your family. Therefore, it is often wise to solidify a business succession plan sooner rather than later.

We invite you to contact us to explore how we can help you turn your biggest challenge into one of your biggest opportunities by creating a legacy of success.

For further information or clarification, you can reach me via mainacy@gmail.com



Thursday, October 30, 2014

Requirements for Exemption from Income Tax for charitable religious organisations

Requirements for Exemption from Income Tax  for charitable religious organisations

Exemption from income tax by religious and charitable organisations is provided for under paragraph 10 of the First Schedule to the Income Tax Act, chapter 470, of the laws of Kenya.

The application should be addressed to Kenya Revenue Authority, the Commissioner for Domestic Taxes, but is usually processed through the regional KRA office in the jurisdiction where the applicant is based.

There is no formal application form that is required to be filled. Thus, the application should be made in form of a letter addressed as appropriate and detailing that the applicant has made the requisite criteria for exemption as provided for in the said provisions of the Income Tax Act.   

The application should be accompanied by the following documents:-
  1. Certified copy of Trust Deed /Constitution of the applicant.
  2. Certified copy of Certificate of Incorporation/ Registration  of the applicant;
  3. Certified true copy of the PIN Certificate of the applicant;
  4.  A resolution of the applicant resolving to apply for income tax exemption;
  5. A profile of the applicant detailing its charitable activities and how these benefit the residents of Kenya;
  6. Recommendation letter from relevant  regional religious leader or Bishop in support of our application;
  7. Letter from the Provincial Administration (D.C., D.O., or local Chief), evidencing the existence of the applicant and its activities;  
  8. In case of a renewal, copy of the previous Certificate of Exemption;
  9. Copies of the latest financial statements (profits and loss accounts/income and expenditure statements and balance sheet) of the applicant;
  10. Letter of authorization the agent to submit the application on behalf of the applicant and deal with all incidental correspondence.  

 For more information or assistance relating to tax exemption for charitable organisations, please contact me via mainacy@gmail.com