Shropshire business owners who want to reward employees while encouraging increased performance could consider growth shares.
That’s the message from DY Associate, Sarah Hartshorn, who stated that the shares are a great incentive.
“Growth shares allow employees to participate in the value of the company, but only above a valuation hurdle.
“Existing shareholders’ interests would only be diluted above that level, which is generally set at a chosen figure above the market value of the company on the date the shares are awarded. As there will only be a return above the valuation hurdle, this means they can be purchased by employees for a lower price.”
“Growth shares are a special class of shares that enable employees to share in the value they help generate, creating a common goal among the shareholders in the business to strive for growth.”
“The shares tend to work best as exit incentives, but hurdles can be set before options are exercisable. Although there may be good leaver situations, growth shares are usually forfeited by employees if they leave the company. When an employee acquires the growth shares, they are, of course, exposed to the risks and rewards of share ownership.”
“Growth shares need to be purchased at market value to avoid any income tax and National Insurance contributions liabilities, and it’s common for the shares to be acquired through an Enterprise Management Incentive (EMI) Scheme, which is the most tax-advantageous and provides assurances since the value can be agreed upon with HMRC.”
“Upon disposal of the shares, they are subject to Capital Gains Tax and Business Asset Disposal Relief if the conditions are met. These tax rates are topical against the backdrop of the pending budget on 30th October.”
“Recruitment, retention, and engagement of staff have become more important than ever for growth and long-term success. Most businesses would select key employees as critical to future success; therefore, growth shares are a way of locking in employees, rewarding them, and providing further incentives to grow the business.”
“Allowing employees to acquire shares requires careful consideration, as there can be significant implications for the business and the employee if certain taxation points are not taken into account.”
“At DY, our Business Advisory team has experience with employee share schemes and can offer professional help to guide you through the process.”
Sarah Hartshorn, DY Business Advisory Team
