Legal Practice Notes

Electronic signatures This Practice Note sets out the legal position on electronic signatures—also called digital signatures, e‑signatures, E‑ Signatures, e Signatures, paperless signing or electronic document signing. It explains the categories of electronic signature and the technology used to generate digital signatures, including public key infrastructure ( PKI). It reviews key UK legislation such as the Electronic Communications Act 2000 ( ECA 2000) and the UK e IDAS Regulation, and outlines best practice for executing documents by electronic means. An electronic signature functions as the digital counterpart to a handwritten signature, connecting an individual with the contents of an electronic document. The Note focuses on the general law in England and Wales for commercial contracts in a business‑to‑business context. Readers should be aware that particular transactions may present distinct issues, for example due to laws applicable to consumers. For practical guidance on signing when one or more...

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...

Companies in the US and the UK have long allowed their workforces to hold equity stakes, and each country has offered tax reliefs and introduced other policies and mechanisms to foster employee share ownership across organisations. While the schemes used in the US and UK have evolved along different paths, they still share numerous similarities. Despite differing development over time, many core aspects remain aligned between the two jurisdictions. Accordingly, comparisons should be drawn with those common elements in mind carefully. This Practice Note compares the UK and US across: tax-advantaged, all-employee arrangements discretionary share schemes, and non tax-advantaged share schemes The tables that follow are merely summaries and ought to be read alongside the further Practice Notes suggested. Tax advantaged share plans— UK and US comparison All employee plans The following table compares the US tax-qualified employee stock purchase plan ( ESPP) with two...

This Resource Note summarises the principal elements of Rule 16 of the City Code on Takeovers and Mergers (the Code) and signposts key materials, commentary and guidance from the Panel on Takeovers and Mergers (the Panel), together with Lexis+® UK analysis and resources, to offer practical assistance on the interpretation and application of Rule 16. Materials addressed in this Resource Note comprise: detailed notes that accompany the Code (the Notes), which elaborate on how the Rules are intended to be implemented, plus relevant Appendices addressing particular issues Practice Statements released by the Panel Executive (the body responsible for the day-to-day supervision of takeovers and regulation of the Code) ( Executive), giving informal guidance on the Executive’s usual interpretation and application of the Code Panel Statements issued by the Panel ( P/ S) and Panel Instruments Public...

The meaning of financial assistance—overview Financial assistance is defined in the Companies Act 2006 ( CA 2006). In essence, it covers any support a company provides to enable the purchase of its own shares, where funding is supplied to make that acquisition possible. See below for the categories of company to which these rules apply, together with what amounts to financial assistance for these purposes. Where help is given, it will constitute financial assistance if money, or anything with monetary value, is involved. That said, the help need not involve any expense for the person providing it. The following authorities offer further guidance on the meaning of financial assistance: Charterhouse Investment Trust Ltd v Tempest Diesels Ltd Wallersteiner v Moir The consequences of giving unlawful financial assistance can be serious—see: Consequences of contravening the financial assistance rules, below. Types of companies to which the rules...

Restricted shares and EMI valuations For EMI purposes, restricted shares are those subject to any restrictions described in sections 423(2)–(4) of the Income Tax ( Earnings and Pensions) Act 2003 ( ITEPA 2003). See Practice Note: What are restricted securities? There are two forms of market value relevant to restricted shares for enterprise management incentives ( EMI): actual market value ( AMV) — the value of a share after allowing for any restrictions, including the risk of forfeiture; and unrestricted market value ( UMV) — the value of a share on the basis that no restrictions apply. For restricted shares, the value that ignores the restrictions will be the higher of the two. For EMI, AMV is used to decide whether income tax, employees’ and employers’ National Insurance contributions ( NICs), and potentially the apprenticeship levy, will arise when options are exercised. For more on the tax...

This Practice Note considers when lending to employees or directors, and employee share schemes, might fall within the UK consumer credit regime, and the ramifications for a firm where its arrangements are not excluded... Regulated activities–general The Consumer Credit Act 1974 ( CCA 1974), the Financial Services and Markets Act 2000 ( FSMA 2000) and the Financial Services and Markets Act 2000 ( Regulated Activities) Order 2001, SI 2001/544 ( RAO) should be taken into account by firms that provide loans to their directors or employees. This is because, in particular circumstances described in more detail below, a firm may be undertaking a ‘regulated activity’ as defined in RAO, SI 2001/544. Entering into a regulated credit agreement as lender Credit broking Debt adjusting Debt counselling Debt collecting Debt administration Providing credit information services Providing credit...

What are leavers? People who depart are generally described as ‘leavers’. Under the terms of the relevant share award, the departure reason will typically determine whether someone is a ‘good leaver’ or a ‘bad leaver’, with different consequences arising accordingly. Usually regarded as ‘good leavers’ are those leaving due to: redundancy retirement death disability ill health or injury a transfer of employment protected by Transfer of Undertakings ( Protection of Employment) Regulations 2006 ( TUPE 2006), SI 2006/246 the participant leaving because the employer company has ceased to be an associated company of the scheme organiser Conversely, individuals dismissed for any other reason, specifically for poor performance, or those who leave to join a competitor, are treated as ‘bad leavers’. These are not technical terms, but are widely used in share scheme provisions to set out the treatment of leavers and to...

What are growth shares and are they appropriate? Growth shares—often called value shares or hurdle shares—form a distinct class of share with limited rights. Those rights are structured so that employees share solely in increases in the company’s value arising after an acquisition. In essence, they are crafted to reward value created after the relevant acquisition event, rather than historic worth. For a fuller explanation of the principal characteristics of growth shares, and the typical circumstances in which a company adopts them, see Practice Note: Growth shares (value shares). Key features of growth shares In outline, growth shares: These rights and mechanics are embedded in the company’s constitutional documents and supporting agreements. Are created and designated in the company’s articles of association as a separate class, distinct from the existing share capital; Are allotted to selected employees; and Are governed by the articles and, in...

Company directors Merely holding the office of director does not, under company law, create an automatic entitlement to payment for acting as a director, or to repayment of expenses incurred while providing those services. Authority to remunerate directors for their services must be granted by the company’s constitution. A director may alternatively have a contractual right to remuneration by virtue of, or arising from, an agreement or arrangement with the company for their services......

This Practice Note maps the rules governing pay for directors of quoted companies, set against rising shareholder activism and greater media scrutiny of executive reward. It distils the statutory reporting regime on directors’ remuneration for quoted companies and highlights key provisions of the Companies Act 2006 ( CA 2006), the UK Listing Rules ( UKLR), the Financial Reporting Council’s ( FRC) UK Corporate Governance Code ( UKCG Code), together with best practice guidance on executive pay... Directors’ remuneration—law, regulation and best practice Legislation Under the CA 2006 and the Large and Medium-sized Companies and Groups ( Accounts and Reports) Regulations 2008, SI 2008/410, directors of a quoted company must produce an annual remuneration report disclosing prescribed details of directors’ pay. For CA 2006 purposes, a quoted company is a UK company whose equity share capital: has been admitted to the Official List of the London Stock...

What is a cashless exercise of options? The term ‘cashless exercise’ of options, sometimes called a ‘cashless exercise facility’, describes a method for exercising share options on the basis of an undertaking by the option holder to settle the exercise price (and often any income tax and National Insurance contributions ( NICs) payable by the option holder on the exercise of the option) out of the sale proceeds of the shares obtained on exercise. This might involve selling all of the acquired shares, or disposing of only so many shares as are needed to meet the exercise price and, where relevant, any income tax and NICs due at that time. In essence, a cashless exercise facility lets the option holder exercise an option without having to provide the exercise costs themselves up-front, removing the need to fund those amounts in...

Deferred share bonus: key elements Deferred share bonus arrangements are usually made up of the following core features: they are set up as employees’ share schemes within section 1166 of the Companies Act 2006 ( CA 2006)—see Practice Note: The Companies Act definition of employees' share scheme and its implications participants are generally also enrolled in the company’s annual bonus plan......

This Practice Note provides a broad overview of: the intergovernmental agreement between the UK and the US to enhance international tax compliance and to give effect to FATCA, signed on 12 September 2012 (the UK: US IGA), and the International Tax Compliance Regulations 2015, SI 2015/878 (the International Tax Compliance Regulations), insofar as they relate to implementing the UK: US IGA The International Tax Compliance Regulations took effect on 15 April 2015. They supersede and repeal the International Tax Compliance Regulations ( United States of America) Regulations 2014, SI 2014/1506, which were in force from 30 June 2014 until 14 April 2015. The International Tax Compliance Regulations and the UK: US IGA comprise detailed and demanding provisions. This Practice Note is a summary and does not address every facet of the framework. In certain sections, it necessarily adopts a...

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...

Overview of potential IHT charges When setting up or running an employee benefit trust ( EBT), it is essential to assess the likelihood of Inheritance Tax ( IHT) liabilities. Consider the following: Does the EBT satisfy section 86 of the Inheritance Tax Act 1984 ( IHTA 1984), making it a section 86 trust? Does the EBT include any sub-trusts and, if so, does it still fall within section 86? Is the company providing funds to the EBT a close company? In what manner will beneficiaries receive value from the EBT? Inheritance tax issues for the trustees of an EBT As a broad principle, assets held in a discretionary arrangement such as an EBT come within the IHT framework. Where a charge to IHT arises, the trustees of the settlement are responsible for payment. That said, employee trusts which satisfy the detailed...

This Practice Note summarises the duties on directors to declare their interests in shares under the Companies Act 2006 ( CA 2006) and the UK Market Abuse Regulation, including reporting obligations for dealings by directors and other persons discharging managerial responsibilities ( PDMRs) of listed companies. This Practice Note does not cover the disclosure obligations of companies. Register of directors' interests in shares—continued relevance for all companies Under the Companies Act 1985, companies were obliged to keep a register of directors’ interests in the company’s shares. There is no equivalent obligation in CA 2006, so this register is no longer mandatory. In practice, however, companies (in particular public companies) are likely to retain a register of directors’ interests to monitor any notifications made, eg disclosures by PDMRs under the UK Market Abuse Regulation (see Disclosures by PDMRs under the Market Abuse Regulation below). A company may have to...

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...

The EBT as a trust An employee benefit trust ( EBT) is a type of trust. A trust is the legal arrangement created by a settlor when assets are placed under the control of a trustee for the benefit of a beneficiary, or to achieve a specified purpose. A trust (including an EBT) typically has these characteristics: the assets form a separate fund and do not belong to the trustee’s own estate legal title to the trust property is held in the name of the trustee the trustee has the power and duty, for which it is accountable, to manage, apply, or dispose of the assets in line with the trust terms and the special obligations imposed by law As a general rule, a trust (including an EBT) must have certainty of objects, and for non-charitable trusts such as an EBT, there must be someone in whose favour the court can...

A long-term incentive plan ( LTIP) An LTIP is widely used by listed companies to denote executive share arrangements where senior employees receive share-based awards that vest after at least three years. To meet institutional shareholder voting requirements where approval is needed, such awards are generally conditional on achieving stated performance targets. With particularly rigorous performance conditions, an LTIP is often labelled a performance share plan ( PSP). In the past, where a particular style of LTIP award was used, some companies called it a restricted share plan. For companies listed in the equity shares (commercial companies) category of the London Stock Exchange, the Financial Conduct Authority ( FCA) handbook provides a specific definition of long-term incentive scheme. See Specific definitions below. The term LTIP is also employed more broadly to describe any incentive arrangement lasting more than one year, including cash bonus...