"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"

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.

Reasons why private companies decide to work with us

  • Private companies are our core business area. We have the experience you will need to provide shares for employees. Experience is invaluable because the issues can be tricky but we will guide you to the best solution.
  • We can look at all of the issues including how the shares for employees in private companies will impact on other shareholders and investors.
  • We are able to help private individuals navigate the issues to put them in the best position.

How we help private companies provide shares for employees

  • Selecting the right share scheme for your business;
  • Shares or options;
  • What is most suitable for a private company;
  • Unapproved options.

From the Quoted Companies Alliance (QCA) Employee Share Schemes Survey 

  • Understanding the range of employee share schemes, and understanding the concept of share performance and risk were cited by companies as the two biggest challenges they faced in operating a scheme. 
  • the most common types of scheme used by small and mid-size quoted companies are Enterprise Management Incentives (41%), non tax advantage (Unapproved) Options (37%) and Company Share Option Plans (CSOPs).
  • Companies use employee share schemes to recruit, retain and reward employees, and to encourage employee share ownership.  

Selecting the right award of shares for employees in private companies

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:

  • Shares: Here the choice is between a gift of shares or growth shares.
  • Options: Here the choice is between EMI options, other types of  HMRC approved options, unapproved options and phantom options.
  • LTIPs:  Long term incentive plans (LTIPs) can involve the use of shares or unapproved options.  LTIPs can also be used to hold shares for employees subject to satisfaction of conditions for release of the shares to employees free of any conditions.
  • Phantom: Here share performance is used as the measure for a cash bonus. Shares are not physically issued.

Most popular employee share incentive for SMEs – EMI option

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.

Shares vs options 

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.

Advantages of shares for employees over options

The shares for employees can be:

  • Structured so as to maximise the chances of the employee benefiting from the lower rates of capital gains tax compared with income tax. Business Assets Disposal Relief (Entrepreneurs Relief) may be available;
  • At the employer’s discretion: different employees can receive different awards;
  • Entitle the employee to dividends;
  • Build a stronger sense of a stake in the business than an option can.

Disadvantages of providing shares for employees in private companies

  • Income tax and sometimes National Insurance will be payable on any benefit given to the employee.  What this means in simple terms is that if you gift shares to employees there will be a tax charge.  To calculate the amount of tax payable the value of the shares in the private company for tax purposes will need to be calculated.
  • If the share value falls, HMRC does not refund any tax paid by the employee.

What is most suitable for private company SMEs providing shares for employees?

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

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

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

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.

Employee share ownership trusts

HMRC operate an attractive regime for shareholders wanting sell or gift all or part of their business to its employees.  The employees run the business via an employee ownership trust.  The selling shareholders pay no tax even if they receive consideration or deferred consideration.

The problem with unapproved options

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.

Let us take it from here.

Call us on the number below or complete the form and one of our team will be in touch.
020 7438 1060

Related Expertise

EMI options

We work with employers and also with individuals who ask us to look over the paperwork for them.

Gifting shares

We are happy to provide a steer and a fee estimate.

Growth shares

Growth shares are particularly attractive in high growth companies.

Share options – they do help companies thrive

Working with businesses looking to grow by awarding shares and options to their employees. Help provided on all aspects from grant and exercise through to sale of the option shares. Assistance in dealing with HMRC reporting and queries.

Business Assets Disposal Relief (Entrepreneurs Relief)

Legal aspects, benefits, risks and tax aspects.

Minority Shareholder Rights

We specialise in minority shareholder rights, how to value the shares, tax, and useful strategies to deploy

How to report to HMRC the provision of shares in unquoted companies to employees/directors

How much tax is payable when shares are provided in an unquoted company to an employee or a director? We provide guidance and specialist expertise on how HMRC will approach the question of tax due.

Shareholders leaving the business but remaining as shareholders

We explain why your articles of association or shareholders agreement should deal with the compulsory transfer of shares when directors or employees leave. Specialists for drawing up both the settlement agreement on cessation of employment and the share transfer documentation.

No shareholders agreement: the consequences

What are the consequences of having no shareholder agreement?