Discussion
Hi Guys,
I think this has been done before, but I am struggling to find it.
If we want to give an employee a small percentage of the company as they have a skill set thats valuable to the business, but they can not afford to buy them. How best do you deal with this?
Additionally, we dont want to give them a large tax liability.
I think this has been done before, but I am struggling to find it.
If we want to give an employee a small percentage of the company as they have a skill set thats valuable to the business, but they can not afford to buy them. How best do you deal with this?
Additionally, we dont want to give them a large tax liability.
2 ways we have done this in the past depending on the size / scale of the business and future aspirations with that particular business:-
1. Set up an EMI scheme. This has a cost attached to it but is very useful if you plan to award shares to other employees in the future. These are options as opposed to shares.
2. Sell them the shares at the agreed price (this will incur a tax charge for you) and then allow them to pay for them over a period of time with a documented and contractual payback scheme. I'd suggest that you'd need to get the shares valued, but your accountant can help with this.
For example, let's say the shares are worth £100k, tax is 10% or 28% depending on your situation. The employee pays you the tax liability (£10k or 28K) immediately so you're not out of pocket when your tax return comes in. You then have a written agreement that they will pay x amount of their dividend / bonus /salary to you until the outstanding amount for the shares is fully paid. In our case this was 25% of the gross amount of any divis or bonus with a 3 year max time period.
Don't forget to get a shareholders agreement set up and given your generosity in allowing deferred payments for the shares then I'd suggest that you can be quite bullish on the leaver clauses.
1. Set up an EMI scheme. This has a cost attached to it but is very useful if you plan to award shares to other employees in the future. These are options as opposed to shares.
2. Sell them the shares at the agreed price (this will incur a tax charge for you) and then allow them to pay for them over a period of time with a documented and contractual payback scheme. I'd suggest that you'd need to get the shares valued, but your accountant can help with this.
For example, let's say the shares are worth £100k, tax is 10% or 28% depending on your situation. The employee pays you the tax liability (£10k or 28K) immediately so you're not out of pocket when your tax return comes in. You then have a written agreement that they will pay x amount of their dividend / bonus /salary to you until the outstanding amount for the shares is fully paid. In our case this was 25% of the gross amount of any divis or bonus with a 3 year max time period.
Don't forget to get a shareholders agreement set up and given your generosity in allowing deferred payments for the shares then I'd suggest that you can be quite bullish on the leaver clauses.
foliedouce said:
Don't forget to get a shareholders agreement set up and given your generosity in allowing deferred payments for the shares then I'd suggest that you can be quite bullish on the leaver clauses.
Very important. Good Leaver / Bad Leaver clauses should be clearly explained.Gassing Station | Business | Top of Page | What's New | My Stuff