Sourcing shares for share schemes—comparing new issue shares, market purchase shares and treasury shares
Produced in partnership with Renu Birla
Sourcing shares for share schemes—comparing new issue shares, market purchase shares and treasury shares

The following Share Incentives practice note produced in partnership with Renu Birla provides comprehensive and up to date legal information covering:

  • Sourcing shares for share schemes—comparing new issue shares, market purchase shares and treasury shares
  • Sources of shares
  • Newly issued shares
  • Approvals required
  • Funding
  • Dilution issues
  • Accounting treatment
  • Tax issues
  • Other considerations
  • Market purchase of shares
  • More...

One of the critical considerations when implementing an employee share plan is how the shares which will be needed to satisfy the relevant options and awards are to be made available. This Practice Note summarises some of the factors that will influence the decision made.

Sources of shares

There are three potential sources of the shares:

  1. newly issued shares

  2. existing shares which are purchased from:

    1. existing shareholders

    2. an employee benefit trust (EBT), or

    3. a public market, and

  3. treasury shares

For each of the above it is important to consider:

  1. whether it is legally possible to source the shares in this way

  2. what the cost would be of operating such a source, ie taking into account:

    1. the costs involved in implementing the particular arrangement (eg for setting up, operating and funding an employee benefit trust)

    2. cash flow

    3. the impact on the profit and loss account, and

    4. the impact on the distributable reserves

  3. how will other shareholders be impacted, ie:

    1. dilution of existing shareholders

    2. dividend impact, and

    3. impact on earnings per share

  4. how will employees be impacted, ie:

    1. any tax considerations, and

    2. complexity of arrangement, and

  5. the general flexibility and complexity of the sourcing arrangement

Newly issued shares

Newly issued shares are often the simplest way of sourcing shares for options and/or awards.

Approvals required

Companies need to ensure that their shareholders have given the directors authority to allot new shares (and, where

Popular documents