Share schemes—considerations for unlisted companies
Produced in partnership with Sarah Anderson of RM2 Partnership Limited
Share schemes—considerations for unlisted companies

The following Share Incentives practice note Produced in partnership with Sarah Anderson of RM2 Partnership Limited provides comprehensive and up to date legal information covering:

  • Share schemes—considerations for unlisted companies
  • Perceived barriers to share plans in private companies
  • Why private companies use employee share plans
  • Tax advantaged or non-tax advantaged?
  • Dilution and control concerns for existing shareholders
  • Use ‘exit only’ options
  • Create a new class of shares
  • Limit the equity pool
  • Ensure mandatory transfer provisions for leavers
  • Using an employee benefit trust
  • More...

Private and unlisted companies face particular issues when implementing share schemes for their employees. Key points include the lack of a ready market for the shares, and difficulties in valuing the shares. Companies will also need to think about changes to their Articles of Association and the impact upon shareholders and external investors.

This note summarises the key points and explains how these issues can be overcome provided the share plan is carefully designed and implemented.

Perceived barriers to share plans in private companies

These include:

  1. losing control of the company

  2. no ready market for shares

  3. a lack of awareness of the tax benefits associated with HMRC tax-favoured arrangements, and

  4. a concern about the complexity, and thus cost, of putting a plan in place

With appropriate advice and planning, these issues can be overcome.

Why private companies use employee share plans

The Finance Act 2014 created a significant boost to the concept of employee ownership with the introduction of the employee ownership trust (EOT), which provides tax advantages for company owners selling a controlling interest in their company to a trust which would then hold shares on behalf of all employees. Since its introduction, the EOT has undoubtedly raised the profile of wider employee ownership in private companies, particularly given the ability for EOT controlled companies to pay annual tax-free bonuses to employees. In addition, the ability of an EOT

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