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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.
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.
Employer’s actions which can defeat your tax advantage under EMI options include:
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.
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.
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:
There are often conditions hidden away in a shareholders’ agreement which may not be attractive for you. For example we look out for:
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.
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:
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.
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.
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.
We help employees with the complications of tax reporting and payment of tax to HMRC.
Disputes around the award of shares or options to employees can arise when:
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.
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.
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.
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.