Employee Shares

There are 3 main types of employee share schemes - employee share ownership plans (ESOPs), share incentive plans (SIPs), and share purchase plans (SPPs).

Key initial steps and considerations will include :-

• Designing the scheme - to meet its objectives and to ensure that it complies with all applicable laws and regulations.

• Marketing the scheme - to ensure employees are aware of the benefits of participating in the scheme.

• Administering the scheme -appoint an administrator to be responsible for managing the scheme, including issuing shares, collecting payments, and keeping records.

Legal work involved

There are a number of legal requirements that must be complied with when setting up employee share options and schemes in the UK. This includes:

• Obtaining shareholder approval

• Drafting and registering the scheme document.

• Obtaining tax clearance

• Providing information to employees - including the terms of the scheme and the risks involved.

Risks & Drawbacks for Employees

Things to be aware of and consider for employees will generally include :-

• Illiquidity - employees may end up locked in, with their shares not readily available to sell.

• Company performance - the value of shares will depend on the performance of the company.

• Capital gains tax - Employees may be liable to pay capital gains tax when they sell their shares.

• Income tax: Employees may be liable to pay income tax on the value of shares that are granted to them under a share option scheme.

• Leaver penalties - employees may forfeit unvested shares if they leave job before the vesting period is over or be penalised by bad leaver provisions