GANNONS IOD in Association with ESOP Centre

1. GANNONS IOD in Association with ESOP Centre Implementing Employee Share PlansWithout Racking up Legal Costs

2. This session covers • Background information • Implementation checklist • Common pitfalls

3. Collation of basic ‘core’ details • Company/group • Employee(s) / non executives / consultants • Articles • Share capital • Constitution of the company & powers

4. Current shareholders • What are the % of current holdings? • Informal promises? • Dilution

5. Exercise and take up of shares • What if the employee leaves/is dismissed/dies? • Transfer? • Buy back? • Price? • Powers of attorney

6. Implementation Division of share capital • Will this be necessary to:- • Accommodate desired percentage split between current/future shareholders • Make the award look more appealing New class of shares?

7. Authority to allot shares? • Authority • Articles • Members ordinary resolution • Automatic under the Companies Act • Is the authority current? • Maximum number of shares that can be allotted?

8. Share valuation • HMRC valuation • Commercial valuation • What basis are you using • Commercial value • Minority/majority valuations • Actual market value • Tax market value

9. Paying for shares • Exit – usually out of proceeds of sale • Entrepreneurs’ relief – tax advantages but will require funding • Acquisition in other circumstances • Vote a bonus? • Nil paid shares • £10,000 loans to directors exempt from shareholder approval • Financial assistance abolished for private companies (but not for plcs)

10. Documentation - unavoidable • Award documentation • Subscription letters • Employee loan agreements • Corporate documents • Articles/shareholder’s agreement • Resolutions/power of attorney

11. More documentation • Elections required to preserve CGT treatment • NIC joint election – form to be approved by HMRC in advance • Notification to HMRC • Notice of for shareholder approval

12. Don’t overlook • Investment advice – prohibited • Discretion to award must be used fairly • Supporting evidence of justification • Clear communication – dilution in particular

13. The board meeting • Can the director vote? • Directors duties – reasoned approval • Duty to promote the success of the company for the benefit of its members:- • Long term consequences • Interests of the company’s employees • The need to act fairly at between members

14. Resolutions that may be required • Increase in share capital • Division of share capital • Extension of authority to allot • Consent to dis-apply pre emption provisions • Revision to articles • Shareholder approvals

15. Resolutions – private companies • Alternative procedures • Written resolution – will be the most usual • Resolution at a meeting • Filings required at Companies House

16. Final steps • Execution of documents • Date of grant = execution of the option by the company • New rules for execution where 1 director • Companies House filings (note – penalties for late filing) • Is a statementof capital required?

17. Traps and pitfalls – in no particular order • Employee holding shares – what will this mean? • Have you got your corporate history correct? • Did you get authority and deal with allotment issues? • Have you considered the tax issues – notoriously complicated area

18. Traps and pitfalls • If employees are to hold shares • Unintended consequences – giving away more than intended • Articles and shareholder’s agreement not fit for the job • Timing • HMRC reporting – missing the deadline and facing increased tax liabilities

19. ANY QUESTIONS? MORE INFORMATION ON OUR WEBSITE WWW.GANNONS.CO.UK