Growing a business on your own can be challenging.
It is probable that at some point you will want to bring other partners, employees, family or investors on as shareholders. This is an area that is often oversimplified in the business world with a huge amount of people ‘gifting’ shares to others with no regard for the tax consequences.
Hamilton Blake offers the highest level of expertise in owner managed businesses and share schemes which allow us to advise you properly on the best way to move shares to third parties.
The most useful way’s of giving shares are either through flowering shares or options.
Option Share Schemes
Options are a fantastic way of rewarding key staff or potential employees without having to pay large sums of money. An option works by agreeing to give a person shares at a future date subject to certain criteria being met.
There are also TWO types of Option Schemes; Approved and Unapproved.
They both work in exactly the same way but the tax consequences are very different. Unapproved options work in the same way as gifts and the recipient will likely incur income tax in an amount equal to the market value of the share received.
Approved share schemes such as EMI (Enterprise Management Incentive) allow the market value to be significantly reduced allowing a reduction in tax payable on receipt of anywhere between 75-90%.
There are many other benefits including the recipient automatically qualifies for a 10% tax rate when selling the shares on any gain in value courtesy of entrepreneurs relief.
Flowering Share Schemes
Flowering shares work in the opposite way to an option as the shares are actually issued to the intended recipient at the first point. They are, however, heavily restricted usually with no voting rights, no dividend rights and no rights to capital upon sale.
In a similar way to options, a contract is normally drawn up with certain milestones that the person needs to hit in order to lift the restrictions. The shares will then carry rights and will, in time, become full shares in the company.