Flowering shares can be a useful employee incentive that benefits both employees and employers. As experts in employment law and HR, our team at Neathouse Partners can ensure that you use this tax-efficient employee benefit in the right way.
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What are Flowering Shares?
Flowering shares are a type of employee incentive that allows employees and directors to acquire equity in the company. A flowering share delivers value to the shareholder if the value of the company is above a set threshold.
This works by the company first creating a new class of shares. Below a certain point, these shares deliver minimal returns and have fewer rights. Employees that hold them only receive the shareholder voting rights and capital rights when a specific target is reached. This makes this type of share ideal for businesses that plan to grow to a set amount before exiting. They can be used as an incentive to encourage employee loyalty for the life of the company or until it reaches a certain point in its growth.
One of the advantages is that existing shareholders do not have the value of their shares immediately diluted. Additionally, flowering shares can be constructed so that the owners receive only a portion of the growth achieved, which also helps to protect early shareholders.
Flowering shares are tax-efficient and affordable, offering a useful employee incentive for many businesses.
How Can Neathouse Partners help?
Our expert team can provide assistance with setting up a flowering shares scheme and ensuring your company benefits from using one. We can first provide advice on whether it is the right option for your business and what it will mean for you. As experts in business law and HR matters, we will discuss your business goals and ensure a flowering shares scheme will align with them.
We will help you to find the best employee share scheme for your business and provide advice on valuing the shares. Our team can also help with implementing and administering the share scheme, in addition to combining different types of shares to get more from your flowering shares.
Tax implications of flowering shares
When HMRC tax-advantaged share schemes like EMI schemes can’t be used, flowering shares are an efficient option.
When they are awarded, employees will be required to pay income tax based on the market value of the shares minus the price paid if they pay less than the market value.
Capital Gains Tax of 20% or 40% will also be due on any increase in value when they are sold. Employees may be able to benefit from the annual CGT exemption, and entrepreneur’s relief could also be applied to lower CGT to 10%.
Flowering shares can be combined with EMI options and other share types to maximise tax efficiency too.
Talk to us today
Contact Neathouse Partners to find out more about how we can help with establishing a flowering shares scheme. You can speak to one of our experts about your options and determine whether flowering shares are the right employee incentive for your business.