KPMG LLP
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PRACTICE NOTES
What are growth shares?
Growth shares are ordinary shares that only participate in a company’s capital value once a defined value hurdle is met. That hurdle may equal the company’s market value at the subscription date, but more often is set at a premium to the initial equity value. After the hurdle is cleared, growth shares can participate on any chosen basis—frequently ranking pari passu with other ordinary shares on value created over the hurdle—and may include terms that affect their initial valuation, such as:
catch-up provisions
ratchets
similar features
Returns on growth shares can be capped if desired, although many companies avoid a cap to preserve management’s incentive. For further information, see Practice Note: Growth shares (value shares).
Why issue growth shares?
The primary aim is to drive participants to create future value while ring-fencing current value for existing
Share Incentives
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