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Share Plans for Privately Owned and Unquoted Companies

The proprietors and directors of any independent company which qualifies to grant share options as Enterprise Management Incentives (EMIs) should consider the grant of such options to one or more key employees (on a selective basis). The grant and exercise of EMI options - which enjoy favourable tax treatment for both the option holder and the employer company - is an attractive way of allowing such employees to share in the growth in value to which they contribute through their labour.

To find out more about EMI, please click here.

An independent company, or a subsidiary of a listed company, which fails to qualify to grant EMI options by reason only of the fact that it has gross assets of more than £30 million or more than 250 employees or because it carries on disqualifying activities, may qualify to grant Company Share Option Plans (CSOP) options and SAYE options.

A company which does not otherwise qualify for a government-backed tax-advantaged plan, for example which is not an independent company, may still grant “unapproved” share options. These are potentially expensive in terms of the income tax and NICs which may be charged on the amount of any option gain, but straightforward, flexible and avoid many of the complications of direct shareholding by employees.

On a similar note, it may also be worth looking at cash based incentives in some circumstances.

Many companies, however, prefer their employees to have “skin in the game” by acquiring an immediate shareholding. The cost of “unapproved” options – which combining NICs and tax can lead to an effective tax rate of almost 60% for the employee – also means that many companies look for more efficient alternatives.

For more about these, please click here to read about growth shares or here to read about joint share ownership.

An independent private company should also consider the adoption of a Share Incentive Plan to enable shareholding by all employees. In the 2013 Budget there were several changes to the Share Incentive Plan (SIP) rules which should mean that SIPs are much more attractive to smaller unquoted companies.

For succession planning, private companies may wish to consider whether an EOT model would benefit their shareholders and employees.

How Pett Franklin can help

We would be happy to assist in designing and implementing the right share plan for your company through from structuring to legal drafting and valuation, as well as any accounting implications.

To talk to us about any of the above, please contact Stephen Woodhouse or Charlotte Fleck.

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The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this page was first published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.