This note provides an overview of some of the methods whereby employees can be provided with shares in their employing company or employing group or granted options to acquire such shares at a later date.
These are a type of option which can be granted to an eligible employee up to £250,000 worth of shares (that value is taken at the date of grant). If the options are granted at a market value option price at the date of grant and certain other conditions are satisfied, there is no income tax or NICs on the exercise of EMI options. There is also a possibility of the capital gains tax on the sale of the shares being eligible for Entrepreneurs' Relief at 10%.
EMI options can be used by certain companies carrying on a trade in the UK (subject to certain exceptions including insurance, banking and property development).
The company must also be an independent company which is not under the control of another company and is not a subsidiary of another company. The company (together with any group company) must also not have gross assets of more than £30 million group-wide and the company and its subsidiaries must together have fewer than 250 employees.
There is a notification requirement after the grant of options. It is also advisable to obtain a valuation agreed by HM Revenue and Customs ("HMRC") before options are granted.
A Save As You Earn option scheme has a savings arrangement and a share option element. The employee uses the proceeds of the savings arrangement to fund the exercise price of the option. The scheme has certain tax advantages but is quite restrictive and must be available to all employees. The scheme would usually be used by larger, listed companies.
There are various other equity arrangements which can be implemented by companies seeking to incentivise their employees using equity, for example "hurdle/growth schemes" and "Joint Share Ownership Plans". If you would like to discuss any of these, or any of the above, do not hesitate to contact us.