Growth shares for listed companies
Produced in partnership with Chris Barnes and Catriona Edwards of KPMG LLP
Growth shares for listed companies

The following Share Incentives practice note produced in partnership with Chris Barnes and Catriona Edwards of KPMG LLP provides comprehensive and up to date legal information covering:

  • Growth shares for listed companies
  • What are growth shares?
  • Why issue growth shares?
  • Why would a listed company issue growth shares?
  • How can value be realised by the participant holding growth shares in the listed parent’s subsidiary?
  • How do you value a growth share?
  • Which company in a group would normally issue growth shares?
  • Are there any downsides to the use of growth shares?
  • What are the tax risks associated with growth shares?

Growth shares for listed companies

What are growth shares?

Growth shares are ordinary shares that do not participate in the relevant company’s capital value until a specified value hurdle has been achieved. The value hurdle may be set at the market value of the company on the date of subscription, or (more typically) at a premium above the initial equity value. Once the hurdle has been achieved, the growth shares can participate on any basis, often ranking pari passu with the other ordinary shares on value generated over the hurdle, but sometimes incorporating ratchets or other similar features. The return attributable to growth shares can be capped, if desired.

For further information on growth shares more generally, see Practice Note: Growth shares (value shares).

Why issue growth shares?

The main purpose of offering growth shares is to incentivise participants to create future value, whilst keeping current company value ring fenced for existing shareholders. Growth shares are particularly appropriate as a senior management incentive, and where companies anticipate a steep growth curve.

There are also certain potential tax benefits to structuring incentives as growth shares rather than share options (which may have a similar economic profile), but the commercial advantage of offering real equity to provide an emotional sense of ownership — and thereby drive entrepreneurial behaviour should not be underestimated. See Practice Note: Growth shares (value shares)—Tax treatment of growth

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