Growth shares (value shares)
Growth shares (value shares)

The following Share Incentives practice note provides comprehensive and up to date legal information covering:

  • Growth shares (value shares)
  • What are growth shares?
  • When are growth shares normally used by a company?
  • Key features of growth shares
  • Growth shares that are not linked to a share sale of the company
  • What happens if there is an initial public offering (IPO) of the company?
  • Considerations on whether growth shares are appropriate
  • Tax treatment of growth shares
  • Growth shares and business asset disposal relief (previously entrepreneurs' relief)
  • Corporation tax deduction
  • More...

What are growth shares?

Growth shares, also known as value shares or hurdle shares, are a special class of shares that have restricted rights. These rights are designed to allow employees only to participate in post-acquisition increases in the value of the company. They therefore tend to have a similar economic effect to an option with a market value exercise price. For a comparison between growth shares and share options, see Practice Note: Growth shares—practical examples and comparisons with options.

Key elements of growth shares are as follows:

  1. the employee subscribes for his growth shares at the outset—this differs from an option or conditional share award, as these are structured so that the employee only receives his shares on a future date once certain conditions have been met

  2. the benefit of structuring the growth shares in this way is that any growth in value of the company after the employee has subscribed for his growth shares should be subject to capital gains tax (CGT) treatment as opposed to being within the income tax and National Insurance contributions (NICs) regime. Therefore growth shares can be a very tax-efficient incentive for both the employee and the employer

  3. they can also be attractive to employees as, although they are paying to acquire the shares at the outset, they involve less financial risk for the employee compared to an

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