Share schemes, share options & share buybacks

Want to introduce a share scheme, grant share options to incentivise employees, or buy back shares from an outgoing shareholder? We’ll help you implement the right structure to achieve your goals.

Share schemes, share options, and share buybacks are powerful tools for businesses looking to incentivise employees, restructure ownership, or provide liquidity to shareholders. However, each comes with its own legal and tax considerations, making it essential to choose the right approach for your specific goals.
Share schemes allow employees to become part-owners of the company, helping to attract, motivate, and retain key talent.

However, ensuring the scheme is tax-efficient is crucial.
Share options give the option-holder the right (but not the obligation) to buy shares in the company. Different types of options suit different business needs.

Share buybacks occur when a company purchases shares from a shareholder, turning equity into cash. Buybacks must follow strict rules to be legally valid and avoid tax issues.

3 key considerations for share schemes

1. What schemes do you qualify for?

Not all companies are eligible for every type of share scheme. For example, Enterprise Management Incentive (EMI) schemes are only available to companies with fewer than 250 employees. Understanding which schemes your business qualifies for is essential when structuring the most effective incentive plan.

2. Are you looking to incentivise employees?

A well-designed share scheme can be a great way to attract top talent and encourage key employees to stay and grow the business. Offering shares aligns employees’ interests with the company’s success, fostering long-term commitment.

3. Is the scheme tax-efficient?

Without proper structuring, offering shares to employees can create tax liabilities, including income tax and national insurance charges. However, certain schemes, such as EMI schemes, offer tax advantages that can reduce these liabilities. We’ll help you navigate the tax implications and choose the most efficient scheme for your business.

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3 key considerations for share options

1. What type of option is right for you?

There are different types of share options, each serving a different purpose: ● Call option - Allows the option-holder to buy shares at a pre-agreed price but does not require them to do so - Put option - Gives the option-holder the right to sell shares, requiring the other party to buy them - Put & call option - A combined arrangement where Party A can require Party B to sell the shares, and Party B can require Party A to buy the shares - Cross-option agreement – a put & call option used in business succession planning involving a life policy, allowing surviving shareholders to buy a deceased shareholder’s shares while ensuring the deceased’s estate receives fair value in cash in a tax efficient manner. If you’re unsure which option suits your needs, we’ll guide you through the choices to help you find the best fit.

2. What are the key terms?

When setting up an option arrangement, the key terms need careful consideration, including: - The number and class of option shares - When the option can be exercised - When the option should lapse if not exercised - The purchase price of the shares We’ll work with you to define these terms to ensure they align with your objectives.

3. Is the tax treatment right?

Share options can be tax inefficient unless structured correctly. Depending on the circumstances, issues of income tax (including national insurance), capital gains tax and inheritance tax can apply, and often in combination. We will help you to set up your share option in the most tax efficient way.

3 key considerations for share buybacks

1. What is the purchase price, and does the company have sufficient distributable reserves?

A company must have enough distributable reserves to cover the full purchase price of a buyback. Unlike other transactions, payments cannot be deferred, and so if full payment isn’t possible upfront, alternative structures (such as phased buybacks) may need to be considered.

2. Are the shares being cancelled or held in treasury?
Companies can either:

Cancel the purchased shares (increasing the proportionate ownership of the remaining shareholders)
Hold them in treasury (keeping them available for future transfer without altering the existing shareholding structure)

Choosing the right approach depends on your long-term goals – we can help you decide which option best suits your needs.

3. What are the total costs involved?

Beyond the purchase price, other costs need to be factored in, including professional fees and potential stamp duty. We provide clear, upfront guidance on costs so there are no unexpected surprises down the line.

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Why choose 3volution?

Share schemes, share options and share buybacks can be a great way to reward your employees, drive company success or provide liquidity to outgoing shareholders – but navigating the complexities is essential. At 3volution, we specialise in helping businesses design and implement share arrangements that are legally sound and tailored to their specific needs. Whether you’re creating a new share scheme or share option arrangement, refining an existing one, or buying back the shares of a current shareholder, we’ll work closely with you to ensure the arrangement meets your objectives.

Do you need expert advice on share schemes, share options or share buybacks? Get in touch with us today using the form below.

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3 key considerations for share schemes

3 key considerations for share buybacks

Why choose 3volution?

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Share schemes, share options & share buybacks

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