Pm liquidating corp
This may work well if the company is still quite young and has not raised substantial sums from independent investors.(In the case of publicly-listed companies, options grants are the norm since FMV can be readily determined – and a benefit assessed – and because regulations often prevent the issuance of zero-cost shares.
Other than issuing zero-cost founders shares, the next best approach is to sell shares to employees at a “good” price which one could argue is at FMV considering the substantial restrictions on the shares (eg reverse-vesting and risk of forfeiture).if an employee of a company (private or public) exercises options to buy shares, that employee may have a tax liability even if he sells the shares at a loss.If the company fails, the liability does not disappear.But for pubcos and non-CCPCs, the tax on these benefits may .[NOTE: Companies can issue shares (instead of options) to employees at any price and not trigger an immediate taxable event – it’s the same as giving an option grant that is immediately exercised.As a general rule, try to give employees founders shares early in the company’s life. If a company is beyond its start up phase, there is a worry that if these shares are simply given (for free or for pennies) to an employee, CRA (Canada Revenue Agency) considers this an “employment benefit” on which income tax is payable.
However, make sure that the shares reverse-vest over time (or based on performance), so that quitters and non-performers don’t get a free ride. This benefit is the difference between what the employee paid for the shares and their FMV (Fair Market Value). For CCPCs, this benefit may be deferred until the shares are sold.
This article discusses the pros and cons of stock options vs shares for employees of Canadian – private and public – companies.
The taxation issues are poorly understood and can be very confusing.
Most of the compensation came from stock options – no wonder the CRA (Canada Revenue Agency) wants to tax them!
Unfortunately, tax law can turn stock options into a huge disincentive in attracting key employees.
That is, both a From the company’s perspective, granting shares (instead of options) at a very low price means that fewer shares need to be issued – which is good for all shareholders.