Finance Act 2003

Meaning of shares being “subject to forfeiture” E+W+S+N.I.

19 (1) This paragraph explains what is meant in this Schedule by shares being “subject to forfeiture”. E+W+S+N.I.

(2) Subject to the following provisions of this paragraph, shares are “subject to forfeiture” for so long as the terms on which the recipient is entitled to them—

(a) provide that if certain circumstances arise, or do not arise, there will be a transfer, reversion or forfeiture as a result of which the recipient will cease to be entitled to any beneficial interest in the shares, and

(b) are not such that, in that event, he will be entitled to receive an amount that is equal to or more than the market value of the shares at that time.

(3) In sub-paragraph (2)—

(a) the reference to circumstances arising includes—

(i) the expiry of a period specified in, or determined under, the terms on which the recipient is entitled to the shares,

(ii) the exercise by any person of a power conferred on him by or under those terms, or

(iii) the death of any person; and

(b) the reference to the market value of the shares is to the market value determined as if there were no provision for transfer, reversion or forfeiture.

(4) Shares are not “subject to forfeiture”—

(a) because they are unpaid or partly paid and may be forfeited for non-payment of calls, provided there is no restriction on the meeting of calls by the recipient, or

(b) because the articles of association of the company require the shares to be offered for sale or transferred if the employee ceases to hold specified employment, or

(c) because the recipient may be required to offer the shares for sale or transfer them on the employee ceasing, as a result of misconduct, to hold specified employment.

(5) In sub-paragraph (4)—

(a) “articles of association” includes, in the case of a company incorporated under the law of a country outside the United Kingdom, any equivalent document;

(b) the references to the employee ceasing to hold specified employment are to his ceasing—

(i) to be an employee of the employing company, or

(ii) to be an employee of one or more group companies, or

(iii) to be an employee of any group company,

as specified by the terms on which he is entitled to the shares.

(6) References in this section to the terms on which the recipient is entitled to shares include terms imposed by any contract or arrangement or in any other way.