Q&As

Are founder shares employment-related securities?

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Published by a LexisNexis Share Incentives expert
Published on: 04 February 2016
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When the founders of a business take Shares in the newly Incorporated company they will usually either subscribe for the shares or take a transfer of shares from the entity which is forming the new company. Although these shares are often referred to for convenience as founder shares, the shares will be no different from a tax perspective to shares which are subsequently issued to non-founding Directors and employees.

Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) imposes a charging regime in relation to all shares which are employment-related Securities. A share will be an employment-related security if the shares were actually acquired by reason of employment or are deemed to be by reason of employment.

The 'deeming' provision under ITEPA 2003, s 421B is particularly key, as this has the effect that if an individual

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Jurisdiction(s):
United Kingdom
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Key definition:
Shares definition
What does Shares mean?

The CA 2006 merely provides that a share is a share in the company's share capital. A company's share capital comprises the number of shares issued by it to investors either on or after incorporation. Those investors then become the shareholders in the company. A shareholder’s shares are their personal property. By contrast, the assets of a company are owned by the company itself. Owning shares does not entitle a shareholder to any property rights in the company's assets.

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