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EMI Share Options

Impact on sale of company

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I am sure this is deemed to be a silly question but here goes:

Hypophetical scenario - Company is 100% owned by one individual. He would like to grant EMI Share options to one member of his staff whereby the employee can exercise his 10% share options only upon the sale of the entire issued share capital of the company. The shareholder would like to grant the options for as little as possible (ideally nil) but understands that this would create an IT charge for the employee. Lets say the 10% shares are worth £100k.

The company is sold x years later for say £10million plus net working capital which happens (for arguments sake) to be Nil. However, just before the sale, the employee will exercise his options and shares will be issued to him for £100k, at which point the NWC is now £100k and therefore the company is sold for £10.1m.

Employee receives £10.1m x 10% so £1,010,000 less £100k = £910k

Am I missing anything here? Basically the employee will receive his % less (value of options x 90%). The only way around this so that he receives the whole £1m would be to grant the options at a discount so they cost nothing but this would trigger an IT charge on exercise of £100k x marginal rate of tax which of course is less than the above £90k. That way he would get £1m less £100k x 45% = £955k

 

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