Joint share ownership plans solicitors

Joint share ownership plans are a specific type of benefit/incentive that can be provided to an employee or a director of a company. They are a tax efficient way to entitle such personnel to benefit from and contribute to the success of a company.

They are typically used when a company is unable to offer EMI options or a company share option plan or where the company is unable or unwilling to create a special class of “growth shares” offering similar financial benefits. They tend to only be considered by listed companies although unlisted companies can take advantage of them as well.

Structure

Joint share ownership plans are tailored specifically for each business and they are usually only implemented for senior management. The following are common features:

  • The employee acquires shares with a co-owner who is typically an employee benefit trust (EBT).
  • The ownership agreement between the employee and the EBT will specify the rights attaching to the shares including what should happen when the employee leaves the business and how the employee can realise the benefit of the shares.
  • Often, the EBT is the legal owner, but both the EBT and the employee hold a beneficial interest in the shares. The EBT will be entitled to the value of the shares at purchase, and then the employee will be entitled to the beneficial interest of the value above that. To ensure that, for tax purposes, the employee always holds an identifiable interest in the trust the calculation can be the interest plus a minuscule amount. So even if the shares fall below purchase value, the employee will always have an asset for tax purposes.
  • The employee benefits from the growth in value of the shares. As with growth shares, that benefit may only start to kick in once growth hits a certain level (a “hurdle”) and/or certain other conditions are met such as profit targets.

Despite the fact that the employee is buying in, there are usually no or relatively little costs for the employee involved. This is because the employee is investing in the “hope value” in the share and not in reality spending a great deal of money to purchase their interest. It is the EBT that bears the majority of the cost, and the employee only purchases a percentage interest at a much lower value – but remains to gain significantly by the terms of the EBT arrangement.

Taxation

Joint share ownership plans can be tax efficient with little or no income tax to pay when the shares are acquired. Capital gains tax normally applies to the increase in value of the shares. As of 2023, capital gains tax is 20% – significantly lower than the 40% top rate.

Entrepreneurs’ relief may be available on any gains.

Share valuation is a key aspect of the design and operation of a joint share ownership structure and therefore it will be necessary to also involve a share valuation specialist.

Co-owner

Under a joint ownership plan the co-owner is usually an EBT although this does not have to be the case. The co-owner could, for example, be an individual or a company set up for this purpose.

Using an EBT provides greater flexibility regarding the employee’s ability to dispose of the shares. This is because the EBT can hold the shares on trust for the benefit of its beneficiaries and therefore the shares will be available to be used for other employees.

If the company does not already operate an EBT then one will need to be established.

For any questions you may have concerning joint share ownership plans contact our solicitor Suzy Giele.