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Why Should we have a share scheme?
Nick Wallis, Director, Tax Services To Business, Smith and Williamson:
Often it's going to be the case that small companies don't have access to cash to incentivise their key employees. As a result, the main asset that they have available will be their shares and often in set-up companies, these shares will have a low initial value. So it is often possible to award shares to individuals at a low initial price and therefore very tax efficiently.
What are the main tax issues?
When looking at the tax position for share awards, it is important to...
...not only look at the position for the individual but look at the position for the company because there may be important tax implications for them as well. For most small companies, there won't be any issues for institutional shareholders to consider but there may be some issues you need to consult your substantial investors about. Apart from that, there should be full flexibility in what kind of scheme you introduce.
Should I introduce share awards or share options?
As far as share awards are concerned it is often possible to get shares into the hands of employees at an initial low value thereby minimising tax and they immediately feel part of the company. They may also get the opportunity to benefit at an early date for entrepreneurs relief for substantial share holdings of 5% or more. On the other hand, it can be quite a nuisance to have shareholders where there is no initial value for them and they will only see any value when there is an extra company. Contrary wise, share options are more flexible, the employee does not take a share until often, the very last moment. And he can be an overnight shareholder. This does mean... continued on page two >