IFRS 2 - Shares granted to a Director for free

[Brains12]

Hello,

I kindly need your help for a transaction involving a company and one of its directors.

The company is going to issue some shares and give them for free to one of its director, who will own ~5% of the company at the closing of the transaction.

Does the company need to record a compensation expense and a corresponding increase in equity? Or, the transaction is outside the scope of IFRS 2, because the company is giving shares to him without receiving any services or goods in return?

In other words, is there a way to avoid recording the compensation expense in P&L? Is it possible to argue that the shares are given to the director who is acting as a shareholder and not as an employee who is being compensated for his work?

Thank you

[JRSB]

Companies don't generally give away shares for nothing. Are the other shareholders (95%) happy about that?

Sounds like a straight share based payment for director services.

[Marek Muc]

Is it possible to argue that the shares are given to the director who is acting as a shareholder and not as an employee who is being compensated for his work?

Yes - as long as the director was a shareholder prior to benefitting from the present issue, and other shareholders also benefited in line with their shareholding size.

[JRSB]

The poster says the director will hold 5% after the transaction, which suggests s/he is benefitting and other shareholders are not (unless strangely worded and they also had 5% before...!)

[Brains12]

Effectively, he is receiving those shares because of the good work done in expanding the business. And he is not a shareholder at the moment.

Thank you both!

[JRSB]

You said before "the company is giving shares to him without receiving any services or goods in return"?

[Brains12]

Yes, because there are no services or goods at the time of the issue. I think it is better to say that he is receiving the shares because of the work performed in the past, correct?

[Marek Muc]

Yes, it's known as immediate vesting https://ifrscommunity.com/knowledge-bas ... te-vesting