Employee Share Incentive Schemes

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We specialise in helping businesses design, implement, and manage effective employee share incentive schemes.

These schemes can motivate your team, align their interests with those of the company, and support long-term growth. Our tailored legal solutions ensure your share plans are structured to meet your commercial goals while minimising risk and ensuring compliance with UK laws and regulations.

Our Services

We provide expert advice and assistance in the following areas:

Enterprise Management Incentives (EMI) Share Options

EMI schemes are one of the most tax-efficient ways to reward employees while maintaining control over equity distribution.

Key considerations:
- Eligibility criteria for both the company and employees
- Valuation of shares to secure HMRC agreement
- Setting appropriate exercise conditions
- Compliance with the £3 million limit on unexercised options
Risks:
- Losing EMI tax advantages due to non-compliance
- Dilution of existing shareholders
- Complexity of administration

Unapproved Non-Tax-Advantaged Share Options

These schemes provide flexibility for companies that don’t qualify for tax-advantaged plans or need bespoke arrangements.

Key considerations:
- No statutory limits on the value of options
- Flexibility in structuring exercise conditions
- Potential tax implications for employees and the company
Risks:
- Higher tax burden compared to EMI schemes

Direct Issue of Shares

Companies may choose to issue shares directly to employees as part of their remuneration package or as a one-off incentive.

Key considerations:
- Determining the class of shares to issue
- Ensuring employee rights align with company goals (e.g., voting, dividends)
- Compliance with Companies Act 2006
Risks:
- Immediate dilution of existing shareholders
- Potential income tax and National Insurance liabilities for employees

Growth Share Schemes

Growth shares reward employees for increasing the value of the company without granting full equity.

Key considerations:
- Defining the growth hurdle or performance criteria
- Valuation and agreement with HMRC
- Creating bespoke articles of association
Risks:
- Complexity of valuation and legal drafting
- Disputes over the calculation of growth thresholds

Company Share Option Plans (CSOPs)

CSOPs are HMRC-approved schemes offering tax advantages for companies outside the EMI framework.

Key considerations:
- £30,000 limit per employee
- Meeting the statutory criteria for eligibility
- Setting clear performance or retention conditions
Risks:
- Forfeiture of tax benefits due to non-compliance
- Administrative burden to maintain the scheme

Phantom Shares

Phantom share schemes reward employees based on the increase in share value without issuing actual shares.

Key considerations:
- Structuring agreements to reflect share price movements
- Designing tax-efficient payment mechanisms
- Ensuring clarity in payout triggers and calculations
Risks:
- Misalignment of expectations regarding payouts
- Complexity in valuation and documentation

Employee Ownership Trusts (EOTs)

EOTs are designed to enable majority employee ownership, offering significant tax advantages and fostering a collaborative culture.

Key considerations:
- Structuring the trust to meet statutory requirements
- Securing financing for the trust’s purchase of shares
- Managing ongoing governance and employee engagement
Risks:
- Complexity of establishing the trust
- Potential challenges in securing funding

Why Choose Us?

Our team of expert solicitors has extensive experience advising on employee share schemes. We ensure your plans are:

Legally compliant
Aligned with your business goals
Flexible to accommodate future growth

Frequently Asked Questions (FAQs)

What are the tax advantages of an EMI scheme?: Employees benefit from reduced income tax and National Insurance contributions, while employers gain corporation tax relief on the value of the shares.
Can a company offer multiple types of share schemes simultaneously?: Yes, companies can offer a combination of schemes, tailored to different employee groups or business needs.
How do I value shares for an employee share scheme?: Share valuations should be conducted by a professional and agreed with HMRC to ensure compliance and tax efficiency.
What happens to employee share options if the company is sold?: Options may vest immediately, be exercised, or converted into options in the acquiring company, depending on the scheme rules.
Are directors eligible for employee share incentive schemes?: Yes, provided they meet the scheme’s eligibility criteria. For EMI, directors must meet working time requirements.
What are the key differences between EMI and CSOP schemes?: EMI schemes have higher tax benefits and flexibility, while CSOPs are suited for companies that may not qualify for EMI.
Can non-UK employees participate in share schemes?: Yes, but local tax laws and regulations must be considered to ensure compliance.
What are the costs involved in setting up a share scheme?: Costs vary depending on the complexity of the scheme and professional advice required, including legal and tax advice.
How does a growth share scheme differ from issuing ordinary shares?: Growth shares reward only the future increase in company value, preserving existing equity for current shareholders.
What are the tax implications for employees receiving phantom shares?: Payments are treated as employment income and subject to income tax and National Insurance.
How long does it take to implement an EMI scheme?: Typically, it takes 6-12 weeks to design, obtain HMRC approval, and implement an EMI scheme.
What are the ongoing reporting obligations for share schemes?: Employers must file annual returns with HMRC and maintain accurate records of share scheme activities.
Can a share scheme be tailored to specific employee performance metrics?: Yes, many schemes allow for bespoke performance conditions tied to individual or company goals.
What happens if an employee leaves the company before exercising their options?: Most schemes include provisions for leavers, such as lapse of options or different rules for “good” and “bad” leavers.
How does an EOT benefit the company and its employees?: EOTs offer tax-free bonuses for employees, promote a collaborative culture, and provide significant capital gains tax relief for selling shareholders.

Contact Us

Our Team

Jonathan Lea

Managing Director | Senior Corporate & Commercial Solicitor

Callum Ritchie

Corporate Solicitor

Liam Mulvee

Senior Corporate and Commercial Solicitor

George Harrison

Trainee Solicitor

Allan Kay

Paralegal

What Our Clients Say

I'm based in Aberdeen, Scotland. I found the Jonathan Lea Network online. I had been using a solicitors firm in Aberdeen for a year and not got anywhere. I took a chance and contacted JLN network in which I found the enquiry to be dealt with promptly, efficiently and professionally. I was able to do what I had requested another firm to do within weeks instead of over a year with no end in sight. I'm extremely grateful to Jonathan and his team (Elliott, Abi and Alice) for their help. I would have no hesitation in recommending The JLN to others. It was a shareholders agreement and share allocation that I needed assistance with, it was dealt with very smoothly and efficient. I wish the JLN every success for the future and will use them again. Dec 2024 - Will always remember this firm for the work they carried out for me, greatly appreciated. Highly recommended.

S JM

11/12/2024

Kent was extremely helpful, and provided great support when I needed it. Would absolutely recommend getting in touch with them!

Tomas

01/11/2024

Adrian Samuel Adrian brought sanity, logic and a systematic, calm approach to my case, a dispute that initially felt chaotic, confusing and scary. I came to him feeling totally overwhelmed and struggling to see a way forward with my dispute. Adrian gave me the confidence to progress my case and we avoided a potentially very costly trial and achieved a beneficial outcome through mediation. It’s been a total pleasure working with him. He is knowledgeable in applying the law in innovative ways, and I always felt he had my best interests at heart. He is an experienced solicitor, but more importantly a good human being, showing great care for his clients. Thank you to the whole team at Jonathan Lea Network!

Carin Magnusson

14/10/2024

Thanks very much to JLN team, especially Byron, Elliot and Philippa. They were diligent, thorough and persistent in supporting us with our requirements and with a positive outcome. Much appreciated and highly recommended

Suresh Kumar

12/09/2024

Adrian Samuel and George Harrison assisted me by organising a Mediator to resolve an action I was taking against two people. It was very complex but after several hours an agreement was reached with the other parties. Both Adrian, George and the Mediator were most professional throughout the negotiations and although I initially had negative thoughts on its success they were successful. I highly recommend them. Tony Piacun

Tony Piacun

21/08/2024

Google rating score: 4.9 / 5, based on 96 reviews

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