Share schemes common pitfalls

Produced by Tolley in association with

Employment Tax

Guidance

It is worth remembering that the vast majority of employee share schemes run smoothly and do not suffer from any of the pitfalls referred to in this note.

However, there is always the risk that there could be unforeseen consequences.

This list, whilst not exhaustive, covers some of the problems that scheme administrators and advisers may encounter.

Giving away too many shares

While public companies are generally constrained by regulations preventing them from putting too many shares or options into the hands of employees, no such limitations apply to private companies.

Sometimes, excessively generous businesses offer currently low worth shares to the employees that they most value at the time without looking at the long term consequences.

In a small, tightly run organisation, it may well seem appropriate to offer key managers a significant stake in the company in order to maintain their loyalty and level of performance.

However, it is not difficult to see that if, for example, a finance director, marketing director and an operating director are each offered 10% of the shares

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