Jurisdiction(s):
United Kingdom

UK employment-related convertible securities: definition, scope, conversion triggers; distinction from restricted securities; considerations for flowering/growth and ratchet shares

Published by a LexisNexis Share Incentives expert

Practice notes

Convertible securities are:

employment-related securities (see Practice Note: What is an employment-related security?)
securities that can be converted into instruments of a different description (see below)

Accordingly, if a company grants securities to its employees or directors with restricted rights on issue (for example, no dividend entitlement or voting powers) but which may switch into ordinary shares on specified trigger events, those instruments constitute convertible securities.

They are often seen in private equity or venture capital settings and include:

convertible loan notes
convertible preference shares

For information on the income tax treatment of convertible securities, see Practice Note: Convertible securities—tax treatment. For the PAYE and National Insurance contributions (NIC) consequences of convertible securities, see Practice Notes: PAYE implications of employment-related securities and NICs implications of employment-related securities and securities options.

What are convertible securities?

Employment-related securities are convertible securities at the time of acquisition if:

they provide the holder with an entitlement—whether immediate or deferred, conditional or unconditional—to convert them into securities of another description
a contract, agreement, arrangement or condition authorises or requires the granting of such an entitlement

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Dan Sharman

Shoosmiths

• Dan specialises in advising on all types of employee incentive arrangements, ranging from share options, share ownership (particularly growth shares), cash-based schemes and employee benefit trusts.• In addition to handling share options work, he also advises clients on all areas of employment tax, including employment related securities, internationally mobile employees and the tax efficient structuring of bonuses and termination payments.• Dan is dual qualified as both a solicitor and a chartered tax adviser....

Web page updated on 22/05/2026

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