NeatHouse Partners

Growth Shares

Here at Neathouse Partners, our highly professional business lawyers can provide a range of services to help you establish, manage, and understand Growth Shares.

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What are Growth Shares?

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Growth Shares are a type of equity share arrangement that is primarily aimed at private and unlisted UK businesses. In contrast to different shares, assets under this class do not provide employees with voting rights but will give the shareholder to benefit from the sale of the company or other exit events.

This type of employee share model may be used as a standalone tool or alongside other initiatives like Enterprise Management Incentives (EMI). They are additionally characterised by the fact that companies can put stipulations that limit the threshold (hurdle) at which Growth Shares become included in the proceeds from a sale or initial public offering.

Another key attribute is that there is no time limit on when Growth Shares can be executed. The shares give the employee a stake in the company above the hurdle but will be subject to Capital Gains Tax (CGT) at the point of sale. The acquisition costs are low for employees while the use of the hurdle means that they are an attractive feature for businesses due to the lower market value than ordinary shares.

How Growth Shares can benefit your business

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Growth Shares offer an affordable way for employers and employees to capitalise on the potential of a shares-based model. For workers, there is no tax to pay on shares bought at the fair market value while they will benefit from future exit events even if they do not occur in the foreseeable future.

For companies, it translates to lower costs than traditional shares while simultaneously building an engaged and motivated workforce. Growth shares also serve as a great tool for attracting top talent when other financial initiatives may not be viable. Other incentives include but are not limited to;

  • Equity offerings remove the need to raise cash for bonuses or other employee incentives, while the focus on an exit event can protect your cash flow further.
  • Existing shareholders do not see the current value (at the date granted) of their shares become diluted as they do not operate in the same way as standard shares.
  • They give your business a competitive edge and can be considered especially useful in high-growth sectors like technology.

Integrating Growth Shares Growth Shares into a business model

Growth Shares do not need HMRC clearance due to their non-tax advantaged status, which means that the establishment process is a little easier to manage. Nevertheless, a smooth integration will be necessary for the sake of all parties. Neathouse Partners can guide you through every stage of the process, including;

  • Creating the new class of shares and acquiring the necessary shareholder agreements before amending articles.
  • Valuing the company and establishing the ‘hurdle’ at which point holders become included in the profits.
  • Starting the growth share subscription agreement and issuing the shares to appropriate employees.

 

Due to the nature of the exit event-driven shares, Growth Shares won’t need any major attention until the time of sale arrives.

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