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Company Commercial Law

Employee Incentive Schemes

Share options are a way of giving employees a stake in the business.
With experience of a wide range of incentive arrangements, we can help ensure you adopt a scheme which is appropriate and tax-efficient.

Why seek legal advice

Whether you are planning for a future company sale and want to ensure that your key management team remains with the business until the point of exit, looking to recruit at a senior level, or want to incentivise a group of employees for a period of growth, appropriate employee incentives may be the answer.

  • Advice on strategy
  • Experience of wide range of incentives
  • Clear, compliant documentation
  • Explanatory letter to employees
  • Recommendations for specialist tax advice
  • Help with implementation
Let's talk
Incentive schemes
Commercial lawyers Poole

Why choose HK Law?

The Corporate & Commercial Law Team at HK Law has a wealth of experience in the field of employee incentives. We work closely with trusted tax specialists to identify the most tax-efficient incentive scheme for your business.

  • Strategic input: We can deal with both HMRC-approved, non-tax-advantaged options and other forms of incentive and/or bonus incentive structure.
  • Extensive experience: With experience of a wide range of incentive arrangements, we can help ensure you adopt a scheme which is appropriate and tax-efficient.
  • Concise explanations: We avoid using over-complicated legal drafting, so that the concepts and documents can be easily understood and readily explained to employees.
  • Help with employee communications: We can help you answer any questions your employees might have about proposed incentive arrangements.
  • Complete pack of documents: We can provide bespoke Articles of Association, explanatory letters, board minutes, and all required resolutions and Companies House filings.
Caroline Carretta HK Law

Your questions answered

Caroline Carretta – Partner, Head of Corporate & Commercial Law Team
  • Do I need an option scheme to grant share options to one employee?
    If options are being granted to a small number of employees, we recommend using a simple share option agreement, rather than adopting a formal scheme. This is a contract between each the company and employee to whom options are being granted.
  • What is an “EMI” share option?
    EMI (Enterprise Management Incentive) options are tax-advantaged options which have significant tax benefits for the employer and the employee, provided that certain HMRC criteria are met. Any grant of EMI option must be notified to HMRC within 92 days of the grant date. EMI options may be granted either by the company or by an existing shareholder.
  • Can all companies grant EMI share options?
    No. HMRC prescribes limits on those companies which may grant EMI options. These relate to the company’s gross assets (any company with gross assets of £30million or more cannot grant EMI options), and certain business activities (such as farming, property development and legal services) are excluded.
  • Why are EMI options described as tax-advantaged?
    Employees who hold shares or options in their employer company (or group) are generally subject to income tax on the value of this benefit. If the relevant regulations are complied with, employees to whom EMI Options are granted will only pay CGT at the point of sale of the shares, and may then be entitled to Business Asset Disposal Relief.
  • Can EMI options be granted to part-time employees?
    Yes, provided that the employee’s contracted working hours for the Company are at least 25 hours per week or (if less) at least 75% of that employee’s total working time.
  • What are growth-shares?
    With “growth shares”, the shareholder will generally only benefit from growth in value of the company accruing after their shares are allocated to them. Alternatively, shares can be designed so that the shareholder benefits from growth above a stipulated company value (“hurdle shares”), or only if a financial condition (e.g. a minimum profit target or exit condition) is met (“flowering shares”).
  • What are “phantom share options”?
    A phantom share is a cash-based incentive for employees, providing a cash payment linked either to an increase in value of the Company or the achievement of a financial performance target. Phantom share arrangements avoid increasing the number of shareholders or diluting the shareholdings of existing shareholders. Phantom options are treated like cash bonuses for tax purposes.
  • Can we incentivise employees through options without them becoming minority shareholders?
    Yes – employees can be granted “exit-only” options, which means that their option price is fixed at the date of grant, but they do not receive (or pay for) their shares until the company is sold. At that point, the employees receive the sale price for their shares less the option price payable. Alternatively, a phantom share plan could be used.

By Darren Francis, Associate Solicitor

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