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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Stephen Diosi

Head of Employee Incentives, Mishcon de Reya LLP , Employment Tax

Stephen leads the Employee Incentives team at Mishcon de Reya. He has significant experience advising on the strategy, design, implementation and compliance of UK and global employee incentive arrangements, including long term incentive plans, all-employee share plans, HM Revenue and Customs tax-advantaged plans, management incentive plans and growth share and joint ownership plans. Stephen also advises on all related corporate, tax and trusts aspects, corporate governance issues, disclosure of directors' remuneration and share dealing regulations.In addition, Stephen works with companies on the impact that corporate actions have on their incentive arrangements and has acted on many public takeovers, mergers and acquisition, public to private transactions, initial public offerings, capital raising activities and private equity deals.Stephen also advises on contractual disputes and tax investigations relevant to incentives arrangements.Stephen works with a wide range of businesses across several industry sectors, including financial services, natural resources, entertainment, aerospace and transport and for companies that are listed on the London Stock Exchange, AIM and overseas exchanges, together with private equity houses, private companies and owner-managed businesses.

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