- There are usually plenty of choices and we guide employers on what is likely to work for their business. Experience is invaluable as it means the service is fine tuned and focused.
- The range of work offered is from share awards for private companies, share options, work for international groups and larger companies through
- We have the experience of supporting employers as well as employees and directors.
Awarding shares to employees is a big step which does require some thought. The type of questions to consider include:
The choice on how much to give away rests with shareholders.? We prepare share capital tables to show the shareholders the dilution under the share scheme. If employees leave usually they will?lose entitlement.? The shares surrendered by former employees can, if that is desired, return to the pool to provide for new awards.
If you are considering gifting over 50% of the business an employee ownership trust has many attractions for both employees and the sellers.
You need to decide what happens on:
- Reaching milestones: for example,?years of service, financial targets; etc;
- Sale of the business;
- Demerger or reconstruction of a business stream;
- Voluntary arrangement/administration order.
There are no fixed rules. Shares can be gifted for free. Linked into this consideration is should employee enjoy inherent value accumulated pre-award? Another consideration is do you plan for a tax charge for your employees upon the award of shares?
The?articles?and?shareholders agreement?should cater for employee shareholders.? This is because they may present different risks than that of the existing shareholder base.
- For example what will happen if an employee leaves? Do you need good/bad leaver provisions? This is an area where employers often make mistakes which mean ex-employees walk away holding shares.
- The?employment contract?is quite separate from any contract for equity. This means you can fire as an employee, but unless the articles or shareholders agreement expressly cover the point, the employee or director will remain a shareholder.
- If you are going to force a transfer of shares on cessation of employment – how will the shares be valued? There are plenty of choices ranging from a valuation by the accountants to the ability to appoint an independent expert.
- What valuation method will be used?? Again, choices are available.
- Will employee shareholders be treated the same way as investors and founders? Setting up a new class of shares for employee shareholders is often an answer.
A badly designed award of shares gives away more equity than intended and does not enhance shareholder value.? You risk demotivating employees and driving them into the arms of competitors, if you fail to meet their expectations.? The directors can expect a backlash from investors.
Lack of a?share capital dilution table plotting the fully diluted position if all options and share rights are taken up. The share capital dilution table helps companies to monitor the position and meet the demands of investors.
Employers do sometimes failing to?review the articles and?shareholders’ agreement?to make sure they obtain the requisite shareholder approvals.? Similarly employers can overlook the various requirements under the Companies Act which have to be met when there has been an issue of shares to anyone including employees.
There are various time limits for the reporting and payment of tax on the award of shares to employees.? If the time limits are missed so can the tax benefits be lost.? And, or, a charge to interest and penalties is imposed by HMRC for failure to report and or failure to pay tax on time.