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Where Taxpayers and Advisers Meet

Raising Seed Funding, Founder CGT liability?

CameronBriggs
Posts:1
Joined:Tue May 09, 2017 6:58 pm
Raising Seed Funding, Founder CGT liability?

Postby CameronBriggs » Tue May 09, 2017 7:23 pm

Good evening,

I was looking to post a hypothetical scenario and would be keen to hear what the outcome may be. If a start-up company was to raise a seed funding round, with the founder owning a certain portion of shares, will the increase in share value after financing has been put in place land the founder, hypothetically speaking with a hefty CGT bill?

Let's say, for example, the Founder was to include a clause within their term sheet relating to vesting of founder shares (for shareholder protection), for example, with 62.5% being total equity owned:

EOY1: 20%
EOY2: 40%
EOY3: 60%
EOY4: 62.5%

Would the founder in this scenario have to deal with mutliple CGT hits over this period with both the conversion of reserved stock to common stock once vested each year, but with the increase of the share value year on year? Or am I right in 'thinking' (reading!) that the Founder can have the opportunity to pay CGT on all 62.5% of stock once financing is in place and share value has increased?

Also, as a bottom line, is the Founder liable to pay any CGT while stock/shares are being held and not sold? Or is CGT only due once shares have been sold and monies have been received in exchange for said stock? Or is simply just the increase in share value over the course of the year enough for the founder to be charged CGT on?

Would appreciate any thoughts in this scenario, i'm posting on behalf of a personal connection of mine.

Many thanks.

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Raising Seed Funding, Founder CGT liability?

Postby pawncob » Wed May 10, 2017 11:15 am

CGT liability will only arise on disposal.
With a pinch of salt take what I say, but don't exceed your RDA


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