Flowering Shares & Growth Share Plans
With many years of experience working closely with businesses of all sizes, our corporate team has gained a reputation for exceeding our clients’ expectations time after time. As leading law firm directory Chambers and Partners puts it: “This ’proactive and supportive’ team has been involved in a number of high-profile regional deals. It has particular experience in the healthcare market, company reorganisations and in dealing with information memoranda for collective investment schemes.”
Based in offices in Leeds, Sheffield and York, our solicitors are ready to help you with your growth or flowering share arrangements. Call 0333 323 5292 or fill in the online contact form.
The Difference Between Growth and Flowering Shares
The boundary between growth shares and flowering shares is not always clear and, given the difference in tax treatment, professional advice should be taken.
About Growth Shares
Growth shares are different to flowering shares because they increase in value gradually with the value of the company they represent. They do not pay a dividend and are typically used by companies whose earnings are predicted to grow quicker than the rest of the market.
If done properly, growth shares should result in capital gains tax treatment for employees (as opposed to income tax) and should incur a minimal cost for the employee because their shares will have little or no value until some further growth or event occurs.
About Flowering Shares
Flowering shares acquire certain rights only after a specific trigger event or target is achieved, which means they might become entitled to dividends only when the company is worth more than £2m, for example.
Flowering shares are subject to income tax – they are treated as “convertible shares” for tax purposes.
Putting Arrangements in Place
Making arrangements for growth or flowering shares involves creating a specific new class of shares and amending the articles of association of the company. The articles will specify the rights attaching to the shares. These will include matters such as voting, income and capital rights and any performance targets and leaver provisions, perhaps including good/bad leaver variations.
The growth/flowering shares are issued at their current market value. As mentioned above, this will usually be very low as there will have to be underlying growth in the value of the company, or a hurdle jumped or target met, before the growth or flowering shares participate in that value.
It is advisable to get a robust professional valuation, as you cannot agree the value of such shares with HMRC prior to their issue. These arrangements can also be used in conjunction with EMI share options.
As with the issue of any shares or options to employees, HMRC should be notified through the new online system.
How We Can Help
We can help you better understand growth and flowering shares and the situations in which they should be issued.
No set of circumstances or situation is too complicated or too technical for us.
We recently advised on a growth share plan in a quasi-partnership where the existing shareholders wanted to preserve the first £500,000 of capital value between themselves, with a new holder of growth shares participating equally with them in any capital value above that amount. We have also advised a venture capital-backed high growth company where key executives held flowering shares which acquired a significant value if a certain exit value was achieved.
Variations on growth and flowering share arrangements are endless and, given that there is no set formula, we believe that our track record and experience in this area provides enormous added value to clients.
If you are looking for information or legal advice about flowering or growth shares, get in touch with our team of experts today. Call 0333 323 5292 or fill in the online contact form.