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Growth Share Schemes/Arrangements

Blacks Solicitors’ Corporate team regularly provide sensible and pragmatic advice to owner-managed businesses of all sizes in relation to Growth Share Schemes/Agreements.

Growth Shares are also known as Freezer Shares, Value Shares, or Hurdle Shares.

They are a special class of shares that have rights attached to them designed to allow incoming shareholders, often employees and other key individuals, to gain from an increase in the value of the company above a specified level or ‘hurdle’.

Some of the key features of Growth Share Schemes/Arrangements are as follows:

  • It can be appealing to companies whose existing shareholders are keen to minimise the extent to which their interest in the company may be diluted by incoming minority shareholders. As such, Growth Shares typically carry no voting rights and no entitlement to dividends
  • If structured correctly, any increase in the value of the Growth Shares is subject to the Capital Gains Tax (CGT) regime, rather than the Income Tax and National Insurance Contributions (NICs) regime, which is more favourable to both the incoming shareholder and the company
  • They are flexible, and can apply to parent companies and/or trading subsidiaries. This allows a company to permit individuals to participate only in the growth of a particular subsidiary company, if required
  • They can be used in conjunction with other Share Option Schemes

Frequently Asked Questions

What are the tax benefits of a Growth Share Scheme/Arrangement?

Under the current tax regime, Growth Shares are a useful way of delivering tax-efficient share awards where an employer company is unable to qualify for tax advantaged plans such as an Enterprise Management Incentive (EMI) scheme, or where the value that employees are intended to receive under a scheme is greater than the statutory limits that apply to tax advantaged plans.

Depending on the specific rights attaching to the Growth Shares and the structure of the arrangement, there is often no income tax or NICs due when an employee subscribes for the shares or when the growth shareholder sells his shares, an advantage to both employees and employers. Instead, an employee’s gain will be subject to CGT, and if entrepreneurs’ relief applies, then the effective tax rate could be as low as 10%.

Unfortunately, there is no corporation tax relief available in relation to Growth Shares.

Can Growth Share Schemes/Arrangements be offered to non-employees?

In short, yes. Whilst Growth Share Schemes are often offered as an employee incentive there is no restriction in relation to who Growth Shares can be allotted to. Existing shareholders, directors and/or third parties can participate in Growth Share Schemes.

 

Our Corporate team are enthusiastic about helping businesses achieve and exceed their potential and work closely with them, their accounting and tax advisers to create flexible Growth Share Schemes that help engage, motivate and incentivise key employees and other individuals.

 

For more information on the above, or to find out how Blacks’ Corporate team can assist you and your business, with a Growth Share Scheme/Arrangement, please email or call us today on 0113 207 0000.

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