Cooper Cavendish
8 Contributions by Cooper Cavendish Experts
PRACTICE NOTES
AIM company share schemes: UK regulatory, corporate governance, valuation, disclosure and tax issues
This Practice Note explores the range of issues that arise for companies admitted to trading on AIM when creating and running employee and executive share plans. It highlights the principal regulatory and corporate governance points to keep in view, together with some tax considerations for the company and scheme participants.
Regulatory issues
Introduction
Compared with companies listed in the equity shares (commercial companies) category of the London Stock Exchange, AIM-traded companies usually face less onerous corporate governance obligations. Although AIM issuers must still comply with the Market Abuse Regulation, they are not required to adhere to the UK Corporate Governance Code, nor to the remuneration policy and reporting regime that applies to companies listed in the commercial companies category. AIM companies are not obliged to produce an annual directors’ remuneration report, and are not required to put a remuneration policy or report to a
Share Incentives
PRACTICE NOTES
Employee share scheme participants and shareholders
This Practice Note considers the matters that arise on the death of a participant in both HMRC tax-advantaged schemes and a range of unapproved share scheme arrangements. It also examines the practical points connected with the death of an employee shareholder who may have obtained shares under those arrangements.
Market practice
Early Vesting
As a matter of market practice, in most employee share plans, death is ordinarily treated as a 'good leaver' event (see Practice Note: Drafting leaver provisions in share plans—Different treatment for different types of leavers). This typically results in accelerated vesting or the ability to exercise awards being triggered. Where that applies, and the relevant scheme is an option plan, the deceased participant’s personal representatives are permitted to exercise options within a defined window (commonly 12 months after death). Likewise, options already vested will generally have to be
Share Incentives
PRACTICE NOTES
What is an employee ownership trust
An employee ownership trust (EOT) is a distinct form of employee benefit trust (EBT) that must satisfy defined statutory conditions. EOTs were brought in by the Finance Act 2014, alongside particular tax advantages made available both to companies owned by an EOT and to individuals who transfer shares to an EOT. Where the strict legal requirements are not met in relation to the EOT, those tax reliefs will not apply. These statutory thresholds and conditions are central to qualification for any associated tax reliefs available under EOTs. For more information on EOTs and the legislative tests they are required to meet, see Practice Note: Employee ownership trusts. For guidance on pitfalls and frequent errors to watch for when establishing and running an EOT, see Practice Note: Pitfalls of setting up and operating an
Share Incentives
PRACTICE NOTES
Employee benefit trusts (EBTs) are a form of discretionary trust created primarily to allow companies to deliver shares, cash or other rewards to employees within the workforce. They are frequently used to underpin employee share plans and to promote broader employee share ownership. For broader background on EBTs, see Practice Note: What is an employee benefit trust? This Practice Note considers how private company sales can affect EBT share arrangements and the practical hurdles for businesses running them in practice. It explores the potential consequences for EBT-held shares where a private business is sold, and highlights key practical considerations for companies that operate such trusts. Note that further complications may emerge where share trading occurs on a PISCES. For more on this, see Practice Note: PISCES and share incentive arrangements in
Share Incentives
PRACTICE NOTES
Employment-related securities and securities options
An employment-related security is, in broad terms, any security—covering shares, certain insurance contract rights, debt, derivatives, warrants, and stakes in investment partnerships and other collective investment schemes—where the chance or right to obtain that security (or an interest in it) arises by virtue of the individual’s employment, or someone else’s employment. Whether securities are employment-related determines the tax treatment on acquisition, on disposal, and throughout ownership. This Practice Note examines how the income tax charging provisions interact with the capital gains tax (CGT) framework on disposals of employment-related securities. Share options are not categorised as employment-related securities; for tax purposes they are called ‘securities options’, although options are very often granted over employment-related securities. For more on the definition, see Practice Note: What is an employment-related security?
The capital gains tax regime
When an individual sells or otherwise disposes of an asset for a
Share Incentives
PRACTICE NOTES
Introduction
Groups of companies carry out reorganisations for numerous and varied reasons; however, whatever the motivation, such changes frequently influence existing share plans and other employee equity arrangements. At times the effect is commercial, yet it is important to take care that any valuable tax advantages are not forfeited.
transferring the business of one group company to another group company, often arising from an acquisition or to enable the sale of a specific part of the business and its assets
transferring the shares of one subsidiary to another subsidiary so the group achieves the most suitable structure, often following an acquisition or sale of a business, and
inserting a new group holding or parent company above an existing parent company, typically to facilitate an initial public offering (IPO) or a new third-party investment, without any change to the group’s ultimate
Share Incentives
PRACTICE NOTES
Introduction
A tax indemnity allows an employer to recoup income tax and National Insurance contributions (NICs) from an employee, typically through a range of methods to keep flexibility for both sides. Within share schemes, they are especially significant because an employer may need to settle substantial sums with HMRC and, without a binding recovery mechanism, could be left exposed. Where income tax becomes due on employment related securities or options, an employer may still be required to account for that tax to HMRC even if no cash is received. Generally, this duty arises where the securities are ‘readily convertible assets’ (RCAs) or deemed RCAs at the time of the taxable event, or where the employee receives cash or RCAs in connection with them. For further guidance on when shares constitute RCAs, see Practice Note: Share options and readily convertible assets.
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PRECEDENTS
[ insert name of award holder ]
[ insert address ]
[ insert postcode ]
[ insert date ]
Dear [ insert name of award holder ],
[ insert name of plan ] Long Term Incentive Plan: effect of recent rights issue on your LTIP award[s]
1 Introduction
On [ insert date ], [ insert name of company ] (the Company) invited all of its shareholders to take up an offer to subscribe for additional Company shares. Under this rights issue, shareholders could apply for [ insert number ] new shares for every [ insert number ] shares they already owned. The subscription price was set at [ insert currency and amount ] per new share, representing an approximate discount of [ insert currency and amount ] to the market price on [ insert date ]. [ Further details about the rights issue are provided in the enclosed copy of the
Share Incentives
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