gannons iod in association with esop centre implementing employee share plans without racking up...
TRANSCRIPT
![Page 1: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/1.jpg)
GANNONS
IOD in Association with ESOP Centre
Implementing Employee Share Plans
Without Racking up Legal Costs
![Page 2: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/2.jpg)
This session covers
• Background information
• Implementation checklist
• Common pitfalls
![Page 3: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/3.jpg)
Collation of basic ‘core’ details
• Company/group• Employee(s) / non executives / consultants• Articles • Share capital• Constitution of the company & powers
![Page 4: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/4.jpg)
Current shareholders
• What are the % of current holdings?
• Informal promises?
• Dilution
![Page 5: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/5.jpg)
Exercise and take up of shares
• What if the employee leaves/is dismissed/dies?o Transfer?o Buy back?o Price?
• Powers of attorney
![Page 6: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/6.jpg)
Implementation
Division of share capital• 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?
![Page 7: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/7.jpg)
Authority to allot shares?
• Authorityo Articleso Members ordinary resolutiono Automatic under the Companies Act
• Is the authority current?
• Maximum number of shares that can be allotted?
![Page 8: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/8.jpg)
Share valuation
• HMRC valuation
• Commercial valuation
• What basis are you usingo Commercial valueo Minority/majority valuationso Actual market valueo Tax market value
![Page 9: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/9.jpg)
Paying for shares
• Exit – usually out of proceeds of sale
• Entrepreneurs’ relief – tax advantages but will require funding
• Acquisition in other circumstanceso Vote a bonus? o Nil paid shares o £10,000 loans to directors exempt from shareholder approval
• Financial assistance abolished for private companies (but not for plcs)
![Page 10: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/10.jpg)
Documentation - unavoidable
• Award documentation
• Subscription letters
• Employee loan agreements
• Corporate documentso Articles/shareholder’s agreemento Resolutions/power of attorney
![Page 11: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/11.jpg)
More documentation
• Elections required to preserve CGT treatment
• NIC joint election – form to be approved by HMRC in advance
• Notification to HMRC
• Notice of for shareholder approval
![Page 12: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/12.jpg)
Don’t overlook
• Investment advice – prohibited
• Discretion to award must be used fairly
• Supporting evidence of justification
• Clear communication – dilution in particular
![Page 13: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/13.jpg)
The board meeting
• Can the director vote?
• Directors duties – reasoned approval
• Duty to promote the success of the company for the benefit of its members:-o Long term consequenceso Interests of the company’s employeeso The need to act fairly at between members
![Page 14: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/14.jpg)
Resolutions that may be required
• Increase in share capital
• Division of share capital
• Extension of authority to allot
• Consent to dis-apply pre emption provisions
• Revision to articles
• Shareholder approvals
![Page 15: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/15.jpg)
Resolutions – private companies
• Alternative procedureso Written resolution – will be the most usualo Resolution at a meeting
• Filings required at Companies House
![Page 16: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/16.jpg)
Final steps
• Execution of documentso Date of grant = execution of the option by the
companyo New rules for execution where 1 director
• Companies House filings (note – penalties for late filing)o Is a statement of capital required?
![Page 17: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/17.jpg)
Traps and pitfalls – in no particular order
• Employee holding shares – what will this mean?
• Have you got your corporate history correct?
• Did you get authority and deal with allotment issues?
• Have you considered the tax issues – notoriously complicated area
![Page 18: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/18.jpg)
Traps and pitfalls
• If employees are to hold shareso Unintended consequences – giving away more than
intendedo Articles and shareholder’s agreement not fit for the job
• Timing
• HMRC reporting – missing the deadline and facing increased tax liabilities
![Page 19: GANNONS IOD in Association with ESOP Centre Implementing Employee Share Plans Without Racking up Legal Costs](https://reader035.vdocuments.net/reader035/viewer/2022062713/56649cec5503460f949b8e2d/html5/thumbnails/19.jpg)
ANY QUESTIONS?
MORE INFORMATION ON OUR WEBSITE
WWW.GANNONS.CO.UK