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Unapproved share options introduction


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An outline of a brief talk to consultants of a startup company about implementing an unapproved share option plan.

An outline of a brief talk to consultants of a startup company about implementing an unapproved share option plan.

Published in: Business

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  • 1. Share Options Introduction
  • 2. What are share options? • Right to acquire shares at a future date (pursuant to certain conditions) at a fixed price (value of the shares at date option is granted, frequently set at nil) • Provide a reward for the option holder based on future growth in share value
  • 3. Why share options? • • • • Incentivise, align interest with owners Retention Recruitment No initial cost to the individuals issued with them • More flexible and simpler for company than if employees/consultants held the shares directly
  • 4. Types of share options • EMI and other government approved share option schemes which have tax benefits • Unapproved share options
  • 5. Grant of options • Option plan rules, option certificate and exercise notice • Report the grant of options to HM Revenue and Customs by July 6 following the end of the relevant tax year
  • 6. Exercise of options • • • Exit event such as the company being sold or listed on a stock exchange. • National insurance contributions liability for the employee and the employer on the amount of the option gain. • Possible capital gains tax on the difference between the price received for the sale of the shares and the market value of the shares on the date of exercise of the option. However if option is exercised and the shares sold on the same day, there will normally be no capital gains tax to pay. Income Tax and National Insurance contributions when you use the option to buy shares for less than their value. Income tax is charged on the difference between the market value of the shares at the date of the exercise and the option exercise price). For example, if a consultant is granted an option over 5,000 shares and the option exercise price is £2 and the option is exercised when the shares have a market value of £5, the taxable option gain will be (£5 x 5,000) - (£2 x 5,000) = £15,000. The income tax is payable by the employee through their self assessment tax return for the relevant tax year.
  • 7. Leavers • Good and bad leaver provisions • Options can be cancelled automatically should the consultancy agreement be terminated by either party before an exercise event