Member Article

The simplest way of achieving your objective might be to consider the introduction of a share option scheme – this would enable your company to grant its employees rights to acquire shares at a pre-determined point in the future (i.e. on the occurrence of a flotation), but at a price which is fixed when the options are awarded. The obvious hope is that the price payable by the employees for their shares on the exercise of their options will be considerably less than the float price! You and the company might find this route attractive for a number of reasons… Firstly, it would not involve employees actually acquiring shares before they were traded publicly – all they would have is a contractual right to purchase them at the point of flotation. As a result, your ability to manage the business pre-float would not be complicated by the existence of a large number of minority shareholders. Secondly, awards of this type can act as a powerful incentive for your key employees to stay with the company until it goes public – options will generally lapse if the individual in question leaves the company before they are exercised. Finally, these schemes can be attractive from a tax perspective, particularly if they meet the requirements of the Enterprise Management Incentive ("EMI") rules that were introduced by the Inland Revenue a few years ago. EMI options are, however, at their most tax efficient when they are granted at an early stage of a company's development (i.e. when the market value of its shares is relatively low). If this is something you think might be of interest to you and your employees it should be investigated sooner rather than later.

 

Footnotes: Rodger Cairn is an associate specialising in employee share schemes with commercial law firm Shepherd+ Wedderburn. +44 (0)131-473 5449