Review for Participants

We provide an independent review of shares for employees and directors.  We assess your employment, legal & tax issues arising under the share award and highlight any areas for improvement. We are specialist solicitors navigating this tricky area for you.

We offer a fixed fee service.  Please do call us to discuss.

Reasons for selecting us to review your position

  • We have the experience you will need to understand your position. We help employees and directors receiving shares or options from all types of companies ranging from private companies to larger groups.
  • We pass our expertise gained over many years onto you. We will guide you to the best outcome.
  • We are able to meet you at our London offices or if you prefer deal with your review by telephone.

What to look out for if you are offered options or shares in your employer

Option holder rights

We deal with the full range of option awards from unapproved options to EMI options and other tax advantageous options approved by HMRC.

Typical areas to look at under option agreements

Special risk for EMI options

Under the legislation for EMI schemes there are a series of events which take away the tax benefits.  The events are known as “disqualifying events”.  If there is likely to be a disqualifying event we can look at alternatives to EMI.

Disqualifying events for EMI option purposes

Employer’s actions which can defeat your tax advantage under EMI options include:

  • The company fails to report the share incentive award to HMRC within the relevant period or fails to grant the award within the deadline set by HMRC.
  • Some option schemes prohibit the company from becoming a subsidiary of, or coming under the control of, another company. This includes coming under control of a trust. This means that tax benefits of a share incentive may be lost due to internal reorganisation, e.g. if a new holding company is inserted above the current company.
  • The company ceases to trade or, in the case of a start up where a share incentive was granted to an employee when the company was preparing to trade, the company does not start trading within two years of the date of grant of the share incentive.
  • The employer varies the terms  of the share incentive award or alters the company’s share capital, especially share rights, in a way that affects the value of your share incentive.

Will you know if EMI status is at risk?

Where a disqualifying event under the EMI scheme has already happened the employee’s remedies are limited. There is a 90 day window in which a share award can be “saved”, e.g. an EMI option can be exercised. If the deadline is exhausted preserving the benefit of the option is impossible.

It is recommended that there is a requirement to be notified of EMI disqualifying events.  Including the notification requirement in the EMI documentation puts you in a stronger position.

Acquiring shares

There are a variety of issues to consider when looking at acquiring shares for employees.  Minority shareholders are in a special position.  But enforcing rights where the documentation is not clear is not always easy.

The problem

Tucked away in small print can be provisions which detract from the potential value of your share award.

We look at and point out any problems with the share rights set out in the documentation before they arise.  For example we can review and explain:

Articles of Association 

The articles set out your shareholder rights, e.g. dividend or voting rights.  If you are receiving a gift of shares or growth shares any special provisions can often be found in the articles.

Shareholders’ Agreement

There are often conditions hidden away in a shareholders’ agreement which may not be attractive for you.  For example we look out for:

  • Good leaver/bad leaver provisions – here we are looking for the value you will receive for any shares you are forced to transfer on leaving employment.
  • Compulsory transfers – here we are looking for the circumstances when you will be forced to transfer shares. Usually forced transfer arises on cessation of employment or directorship.  We are looking for other circumstances all of which can act to your disadvantage.
  • Rights of first refusal and pre-emption rights – here we are looking for whether you have an opportunity to acquire shares in the future.

Value of the share award for tax purposes

In unquoted companies the value of shares for tax purposes this needs to be looked at closely.  The tax value (which is not necessarily the same as the commercial value) determines your income tax liability on the award of shares.

Employment documentation

We can review your employment agreement to look for share rights upon termination of employment or dismissal of directorship.

Sales and re-organisations

If you are a shareholder at the point of sale then you will join with other shareholders to receive proceeds.  The issues we look for include:

Forced sale of shares

Will you be forced to sell shares and at what price?  The share of the proceeds received will depend upon the class of shares you hold.  It may be that you are required to agree to an earn out.  An earn out mechanism provides that you receive a slice of consideration on sale and then further instalments of consideration if targets are met.  There are tax issues arising on the earn out which we will advise you upon.

Sale of assets

In some cases the sale of a substantial portion of the company’s assets will trigger a right of shareholders to receive a capital payment in respect of shares held.

Share for share or option swap

If the business is undergoing a re-organisation or share for share exchange there can be implications for option holders and employees who have been awarded shares including growth shares.  Your position will depend upon the terms of the share award which we can review and explain to you.

Tax

We help employees with the complications of tax reporting and payment of tax to HMRC.

  • Share awards will be subject to income tax and national insurance (social security) in some cases.  There may be tax exemptions available if the award is qualified under one of the various HMRC arrangements.
  • If the shares decrease in value HMRC does not refund the tax.  This means the situation needs working through before the tax is paid.
  • Capital gains tax will due on any gain arising on the sale of the shares.

Resolving disputes

Disputes around the award of shares or options to employees can arise when:

  • The employer and employee disagree about the value of the shares awarded which is usually when shares are transferred compulsorily; or
  • The employee loses a tax advantage as a result of employer’s actions.

Resolving share disputes

We review the facts and provide a steer on what to do.  There are sometimes technical arguments which if advanced will bring the dispute to the end – we look for suitable avenues to explore.  The general rule is that the employer cannot take away rights without your express approval or express powers set out and agreed when the shares were awarded.

Use of discretion 

Many awards of shares to employees confer on the employer an element of discretion in how the employee will be treated.  We often see the determination of whether an employee is a good or bad leaver left to the discretion of the employer.  There are rules on how discretion can be applied.  If the discretion has not been applied fairly there may be grounds for a challenge which we can guide on.

Glossary of terms used in employee share schemes

Share schemes and options are full of confusing terms.  We can tell you what the terms mean to you.  Our service helps you to evaluate the real value of the share award or option.

Jargon buster 

Some key terms are:

Grant of option:” occurs when you sign the option agreement.  However, just because you were granted options, does not mean you have the right to exercise them.  The options become exercisable only when they vest. Sometimes vesting occurs years after the option was granted.

Employment related securities:” refers to shares and securities received as a result of any future, current and past employment;

Exercise” occurs when you covert the options for actual “straight” shares. At this point you become a shareholder. You might also receive dividends, depending on the rights attached to your shares.

“Option” or “share option” is a right to acquire shares in the company at a later date.

Restricted securities” are securities or interests in securities held by employees or directors which are subject to restrictions which reduce their value. If shares are restricted securities there may be income tax charges when restrictions are lifted or shares are sold.

Vesting” occurs when you are entitled to the option. Often, vesting is tied to “vesting conditions” or a “vesting schedule”.  This means that you must fulfil certain conditions to be entitled the shares.

Unrestricted tax market value” is a concept used to value private company options and shares for tax purposes. It refers to actual market value of the shares if they were not restricted in any way, e.g. if they had no transfer restrictions.

  • I consulted Gannons to review the option documents which were given to me as a part my employment package. Gannons gave me a very thorough overview of my legal and tax position and I would recommend their services.

  • I contacted Gannons to get some advice on my EMI options. I wanted to leave the company and did not know what to do with my options. Helen’s advice was invaluable.