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We provide solutions for providing shares for employees in private companies. We look at your long term growth plans and fit the incentive for employees and directors around that. Tax is another area we will help you with.
We are always happy to give you a steer and a cost estimation. Please do call us to discuss.
In the UK the ways in which private companies can provide shares for employees is broad. The number of companies implementing employee incentive plans is increasing in the UK. Employers can chose between:
Of the available choices, the most popular way to provide shares for employees in private companies is an EMI option. EMI options carry a proven track record of increasing profitability for the company thought to be due to stronger employee motivation.
Unlike options, shares give the employee a percentage ownership of the company. Employees also immediately become shareholders. Care is required when giving equity away as you will probably need to make sure that you can get the equity back again if the employee/director is no longer part of the businesses. This is achieved via provisions set down in the articles and shareholders agreement.
The shares for employees can be:
Private companies can implement any of the HMRC approved options plans. But some types of HMRC approved plans are not generally suitable for smaller businesses because EMI options are usually the best choice. We will always consider EMI before looking at other alternatives.
EMI options are the most tax efficient type of approved option available and targeted at start ups and smaller SMEs. Intended to be used on a selective basis – i.e. do not have to be made available to the entire workforce.
CSOP options are usually implemented by larger quoted companies that do not qualify for EMI. CSOP options do not have to be made available to the entire workforce. CSOP options are popular with US and other overseas businesses wanting to motivate the UK workforce. Larger private companies with a work force of over 250 employees have to consider CSOP options as they have too many employees to qualify for EMI.
SIP and SAYE option plans have to be offered to all employees. A SIP or SAYE plan is generally not suitable for a private company as the number of participants is too small compared with set up and administrative costs.
Awarding shares for employees under an unapproved option is the most straight forward way to proceed for any private company SME. In some cases, unapproved options are the only choice. But, unapproved options are tax inefficient compared to EMI options or the other types of HMRC approved option plans.
We were looking for a firm who could guide us on how to provide shares to key employees. The service was good and the team have clearly done this type of work many times.