Growth Shares
Vesting period | 4 years (25% each year) |
Accelerated vesting | None |
Hurdle rate | - Price above which the growth shares have any value
- Generally determined by taking the equity value of the business and add some value to it |
How shares are allocated | New class of shares are created and allotted to the individual. They are not share options |
Good leaver | a) Employment ceases AND
b) Death or board’s absolute discretion |
Bad leaver | a) Employment ceases AND
b) NOT a Good Leaver |
Fair value | • A = full value above hurdle rate
• B = complete years in employment since 16 Jun 2022
• C = 4 years
• A * B/C |
If Good Leaver | - Business will be valued at Fair Value.
- Fair Value will just take into account of the business and adjust for a minority discount. Transfer price of Fair Value based on A* B/C
- If other shareholders don’t purchase it within 30 days, value be limited to lower of (Clause 35.9.2):
◦ Fair Value at the time of Good Leaver
◦ Fair Value upon exit. Value based on A * B/C |
• Why do Growth shares have a equity+premium (hurdle)? | • If the Company was worth £0.5M and you give me 30%, then he pays taxes on £150K!
• So you issue a separate class of shares
• Value of the options given to Toby (say 10%) will be lot lower than the ordinary shares valuation of £50K |
Can I issue growth shares each year? | Yes, some companies provide growth shares each year but you have to update the valuation
Articles provide for different hurdles each other |
Dividends issued | Employee (A Ordinary Shareholders) don’t have rights to dividends unless Board, in its discretion, chooses to include dividends |
Definition of Exit | Share Sale - full share sale
Sale of entirety of business and assets
Members voluntary liquidation |
Capital Rights on Exit | Up to Hurdle amount
- Ordinary shareholders get 100% of proceeds up to hurdle amount
Above Hurdle amount - If Exit after Vesting Period
- Parri-passu between Ordinary and A Ordinary Shareholders (variable ”A”)
Above Hurdle amount - if Exit before Vesting Period
- A Ordinary Shareholders get = A x B / C
Var A - as defined above
B = |
Employee leaves | - Employee deemed have to served Deemed Transfer Notice for Ordinary Shareholders to purchase
- Transfer Price
= £1 if Bad Leaver
= Fair Value if Good Leaver and Vesting Period Expired
= Fair Value x B / C (B = years completed from start date; C = 4 years or vesting period)
Fair Value = Value > Hurdle Amount as agreed between parties. If can’t agree, Accountants have final decision.
|
If Ordindary Shareholders don’t purchase A Ordinary Shares within 30 days… | Value attributable to those shares on an Exit
Leaver was Good Leaver after expiry of Vesting Period. Lower of
- Fair Value at original leaving date
- Fair Value at Exit
Leaver was Good Leaver after expiry of Vesting Period
- Fair Value based on Transfer Price (see above)
- Fair Value at Exit x B / C (B = years completed from start date; C = 4 years or vesting period) |
Drag Along | If 50%+ Shareholders Sell to a Proposed Purchaser, they have the option (not the obligation) to drag the remaining shareholders |
Tag Along | If a a Proposed Seller sells to a Proposed Purchaser resulting in the latter getting control, the other shareholders have the option (not the obligation) to tag along for the same purchase price |
EMI Scheme
- You are not allowed to be owned by another company. You can only issue this at the highest level holding company
- Rules
- Gross assets < £30M
- Must have qualifying subsidiaries
- Company can't be a 51% subsidiary of another company
NIL pay - SCENARIO 1
- Subscribe on a NIL basis by buying the shares
- If the company went into administration, he would still be liable for £20K (his option value)
- He owes the company £10k
Non-NIL pay - SCENARIO 2
- Subscribe the share for £1 and gets taxed on the £9,999
Non-NIL Pay - SCENARIO 3
- Subscribe for the shares and pay the full £10K to the company
- CEO doesn't taxed on it and the company gets money. From the CEO's perspective, this is worse than just paying £4.7K to HMRC in Scenario 2