The following Share Incentives practice note Produced in partnership with Becky Rees of Parisi Tax LLP provides comprehensive and up to date legal information covering:
The issues facing private equity backed companies when using shares to incentivise employees are similar to those faced by all companies. However there are some particular features of these sorts of companies that need to be considered.
Private equity investments are usually structured using a holding company which in turn holds shares in the trading company. Often there may be intermediate holding companies in between the holding company and the trading company. The owners behind the holding company in addition to management investors will usually be one or more partnerships or funds.
Depending on the shareholding held by a private equity investor and the control rights it has in the company’s articles of association and any investment agreement, the company issuing the shares ('issuing company') may well be treated as being under the control of another company. This is a problem where the issuing company wishes to operate tax-advantaged enterprise management incentives (EMI) options and company share option plan (CSOP) options (see: EMI and CSOPs below). For example, in the case of EMI options, paragraph 9 of Schedule 5, Part 3 to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) provides that, in order to qualify to operate EMI options, the issuing company must not be a '51% subsidiary' nor under the control of another company
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