How Share Schemes can Benefit your Business

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In the dynamic world of small and medium enterprises (SMEs), fostering a sense of ownership among employees can be a game-changer. One powerful tool in achieving this is through share schemes. These schemes not only align the interests of employees with the company’s success but also offer tax benefits for both parties involved. Let’s look into some of the common types of share schemes and how they can benefit your company.

  • Growth/Flowering Shares:
    Imagine offering your key employees shares that grow in value as your company flourishes. That’s the essence of growth or flowering shares. These shares tie their value to the future growth of the company, incentivizing employees to drive its success. While these shares can minimize tax burdens, they come with administrative complexities best suited for one-time offers.

  • Restricted/Clog Shares:
    For SMEs seeking to grant immediate ownership to employees with tax advantages, restricted shares fit the bill. This scheme allows employees to acquire shares at a discounted market value, albeit with certain selling restrictions. The longer they hold onto these shares, the greater the discount, fostering long-term commitment and aligning their interests with the company’s growth.

  • Share Options:
    Offering employees the option to purchase shares at a predetermined price in the future is a common practice. This scheme, known as share options, enables employees to benefit from any increase in share value over time. However, they only incur taxes upon buying and selling the shares, providing flexibility and potential gains.

  • RSUs (Restricted Stock Units):
    RSUs grant employees free shares that vest over time, serving as a valuable retention tool. Taxation occurs upon vesting, akin to receiving a salary, with the employer withholding taxes. This scheme ensures that employees are rewarded for their tenure and contribution to the company’s success.

  • Keep Scheme:
    Combining the benefits of share options with tax advantages, the Keep Scheme stands out for SMEs. Employees exercise the option to buy shares without immediate tax implications, deferring taxation until they sell the shares. However, eligibility criteria and pricing restrictions apply, making it crucial to assess if your company qualifies.
Selecting the appropriate share scheme hinges on various factors such as:

 

  • Company Size and Stage:
    Start-ups may opt for growth shares to attract talent, while established SMEs might lean towards restricted shares or share options.

  • Employee Demographics:
    Understanding your workforce’s motivations is key to designing an effective scheme.

  • Tax Implications:
    Balancing tax benefits for both the company and employees is essential in making an informed decision.

Navigating the complexities of share schemes requires expert guidance. As always, we here at ECOVISDCA are always here to advise and assist on any business or financial matters.