Transcript Document

GANNONS
IOD in Association with ESOP Centre
Implementing Employee Share Plans
Without Racking up Legal Costs
This session covers
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Background information
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Implementation checklist
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Common pitfalls
Collation of basic ‘core’ details
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Company/group
Employee(s) / non executives / consultants
Articles
Share capital
Constitution of the company & powers
Current shareholders
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What are the % of current holdings?
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Informal promises?
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Dilution
Exercise and take up of shares
• What if the employee leaves/is dismissed/dies?
o Transfer?
o Buy back?
o Price?
• Powers of attorney
Implementation
Division of share capital
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Will this be necessary to:o Accommodate desired percentage split between current/future
shareholders
o Make the award look more appealing
New class of shares?
Authority to allot shares?
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Authority
o Articles
o Members ordinary resolution
o Automatic under the Companies Act
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Is the authority current?
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Maximum number of shares that can be allotted?
Share valuation
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HMRC valuation
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Commercial valuation
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What basis are you using
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Commercial value
Minority/majority valuations
Actual market value
Tax market value
Paying for shares
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Exit – usually out of proceeds of sale
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Entrepreneurs’ relief – tax advantages but will require funding
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Acquisition in other circumstances
o Vote a bonus?
o Nil paid shares
o £10,000 loans to directors exempt from shareholder approval
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Financial assistance abolished for private companies (but not for plcs)
Documentation - unavoidable
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Award documentation
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Subscription letters
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Employee loan agreements
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Corporate documents
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Articles/shareholder’s agreement
Resolutions/power of attorney
More documentation
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Elections required to preserve CGT treatment
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NIC joint election – form to be approved by HMRC in advance
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Notification to HMRC
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Notice of for shareholder approval
Don’t overlook
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Investment advice – prohibited
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Discretion to award must be used fairly
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Supporting evidence of justification
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Clear communication – dilution in particular
The board meeting
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Can the director vote?
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Directors duties – reasoned approval
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Duty to promote the success of the company for the benefit
of its members:o Long term consequences
o Interests of the company’s employees
o The need to act fairly at between members
Resolutions that may be required
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Increase in share capital
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Division of share capital
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Extension of authority to allot
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Consent to dis-apply pre emption provisions
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Revision to articles
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Shareholder approvals
Resolutions – private companies
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Alternative procedures
o Written resolution – will be the most usual
o Resolution at a meeting
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Filings required at Companies House
Final steps
• Execution of documents
o Date of grant = execution of the option by the company
o New rules for execution where 1 director
• Companies House filings (note – penalties for late filing)
o Is a statement of capital required?
Traps and pitfalls – in no particular order
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Employee holding shares – what will this mean?
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Have you got your corporate history correct?
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Did you get authority and deal with allotment issues?
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Have you considered the tax issues – notoriously complicated area
Traps and pitfalls
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If employees are to hold shares
o Unintended consequences – giving away more than intended
o Articles and shareholder’s agreement not fit for the job
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Timing
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HMRC reporting – missing the deadline and facing increased tax
liabilities
ANY QUESTIONS?
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