Issue of B shares to incentivise employees

Issue of B shares to incentivise employees

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A director owns 2 £1 ordinary shares (100%) of a company but would like to retain 5 key employees.  As part of that strategy he would like to offer 2% of the share capital to each.  He currently is paid using a low salary and high dividend policy but wishes for the employees to remain on their current salary but pay them an undetermined share of the profits by dividend once a year.   He plans to create non voting B shares to facilitate this.

The articles are old and do not refer to other classes of shares.  I believe that the steps he needs to take and the tax concerns are as follows:

1.  Amend and update articles;

2. Issue 88 £1 A shares to current director;

3. Sign written resolution to waive pre emption rights;

4. Issue 2 £1 B shares to each of the 5 employees;

5. Register share 'scheme' with HMRC and value shares

6. No NI as no ready market for sale;  employees to register for SA and pay tax over at that point

I would be grateful if anyone can offer any comment on the proposals from a company law or tax perspective

Many Thanks

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By law man
10th Dec 2015 14:13

Shareholders agreement and articles

I expect you have already thought of this: but the company should get its lawyer to draft the new articles and a shareholders' agreement.

For example: make it clear the B shareholders have no rights as to the assets of the company; for their sakes are not liable for losses or contributions;  define their right to profit share and how that profit is calculated (Be sure you can define the profit unambiguously); on leaving employment must transfer their shares back to someone; etc.

 

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