ABI: Association of British Insurers.
Accelerated vesting: Where a share option becomes capable of exercise earlier than normally permitted by the vesting schedule or performance conditions.
Accumulation period: A period not exceeding 12 months during which deductions from employee salaries are accumulated towards the purchase of Partnership Shares in a Share Incentive Plan (SIP).
AIM: A public share dealing market run by the London Stock Exchange. Its information and reporting requirements are less stringent than those for the main Exchange. It is not a recognised investment exchange.
Allot (shares): Where a company issues new shares to a person, usually in return for cash (but see scrip).
Appropriate: (Share Incentive Plan [SIP]) When shares are allocated in trust for the benefit of a named employee.
Associate: For share schemes other than Enterprise Management Incentives (EMIs), a relative (being a spouse, parent, child, remoter antecedent or descendant, brother or sister), partner or the trustee of any settlement of which the individual or any relative is or has been a settler or beneficiary, but excluding the trustees of discretionary employee trusts or Share Incentive Plans (SIPs). Note that for EMI schemes, siblings are not associates.
Associated company: A company is associated with another if either is under the control of the other if they are both controlled by the same person(s).
Bad leaver: An employee who leaves employment and is not defined as a good leaver within the context of a scheme or share option plan.
CGT: Capital Gains Tax.
Close company: In broad terms, a company under the control of five or fewer persons or any number of persons who are shareholder/directors. However, a company is usually not close if one of the "five or fewer" is a non-close company or if more than 35% of the equity is quoted.
Close period: A period prior to the company's release of its interim or preliminary accounts or any time when there is unpublished price-sensitive information, during which directors or senior managers must trade or transfer or be granted options over the shares of their companies. This period is normally 60 days (London Stock Exchange), or 2 months (AIM) before announcement or publication.
Company Share Option Plan (CSOP): A tax-advantaged share option scheme - see here for more information.
Connected party: In summary, the following are connected parties: the wife or husband of the individual, a relative of the wife or husband, the wife or husband of relative, the trustee of a trust settled by the individual, a commercial partner or the wife or husband of a commercial partner. A company is connected with another company if the same person or persons connected with that person, has control of both companies. A company is connected to a person if that person controls it or does so together with connected persons. Any two or more persons are connected if they act together to secure control of a company.
Control: Control is defined by section 995 Income Tax Act 2007 as the ability to control a company's affairs exercised by any means (either alone or with associates). This could be achieved by control of the Board even if there is no shareholding control.
Deferred Share Purchase Plan (DSPP): A non-statutory arrangement where an employee acquires shares at fair value, but pays only a small initial deposit - see here for more information.
Discounted option: a share option which is granted with an exercise price at less than market value.
Distributable reserves: The reserves of a company available as distribution from profit, normally representing the accumulated profits of the business less losses.
Dividend shares: (Share Incentive Plan [SIP]) Employer shares that can be appropriated to an employee for whom shares are already held in trust; as an alternative to paying cash dividends.
Domiciled: A person can have only one domicile which is generally the place of permanent residence. A ‘domicile of origin' is acquired at birth and can be inherited, but a ‘domicile of choice' can be acquired from age 16. This requires strong evidence of having moved to another other country permanently; merely living there is not sufficient.
European Economic Area (EEA): consists of the countries of the European Union plus Norway, Iceland and Liechtenstein.
Employee Benefit Trust (EBT): A trust which holds shares or other assets for the benefit of employees (and usually former employees) and their families. Unless it is a Share Incentive Plan (SIP) trust, it is normally discretionary (i.e. the trustees decide who will receive benefit and when) and this prevents income tax crystallising on the initial payments into trust - see here for more information.
Employee Shareholder Status (ESS): A tax efficient arrangement under which employees can be awarded shares in their company. See here for more information.
Employee Share Ownership Trust (ESOT): Broadly, another name for an Employee Benefit Trust (EBT).
Employee Shares and Securities Unit (ESSU): An office of HM Revenue & Customs which deals with statutory and non-statutory employee share schemes.
Employee-control shares: A controlling shareholding in a company held by employees or directors of that company (together with any employees or directors of subsidiaries).
Employment related securities: Securities acquired where the right or opportunity to do so has arisen by reason of employment, past present or future.
Enterprise Management Incentive (EMI): A tax-advantaged share option scheme - see here for more information.
Entrepreneurs' Relief: A relief available on disposal of shares in a trading company which subject to certain conditions may reduce the effective rate of capital gains tax to 10% on the first £10 million of gains - see here for more information.
ESOP: Strictly "employee share ownership plan" or any Share Incentive Plan (SIP) that provides employees with direct share ownership.
Exercise Price: When the options are exercised and the shares are bought at the price agreed on the date of grant.
Financial Conduct Authority (FCA): An independent organisation, established by government, responsible for regulating virtually all UK financial services markets, exchanges and firms. Previously known as the Financial Services Authority (FSA).
Financial Reporting Council: The umbrella body for the Accounting Standards Board, the Auditing Practices Board, the Professional Oversight Board for Accountancy, the Financial Reporting Review Panel and the Accountancy Investigation and Discipline Board.
Flowering share: A share the value of which depends on the achievement of a performance condition, such as a sales or profits target, or some other conditions such as a target share value on sale of the company.
Forfeiture (of shares): When a shareholder can be obliged to transfer the share for any amount (not just nil consideration) which is less than would have been received if the shares had been disposed of freely.
FRS20/IFRS: Accounting standards requiring share-based remuneration to be valued and expensed by companies.
FRSSE: The Financial Reporting Standard for Smaller Entities.
Free Shares: (Share Incentive Plan [SIP]) Employer shares appropriated under the Plan in trust for an employee free of charge to the employee.
General offer: In the context of this Guide, when a purchaser makes the same offer to all shareholders. A general offer can include alternatives, such as shares or cash, as long as each potential vendor is offered the same choices.
Good leaver: In relation to a Share Incentive Plan (SIP) or Save-As-You-Earn (SAYE) Option Scheme, an employee who leaves due to injury, disability, redundancy (as defined in the Employment Rights Act 1996), retirement, death or transfer of employment (to which the Transfer of Undertaking (Protection of Employment) regulations 2006 apply). Otherwise, defined at the employer's discretion.
Grant: When the options are given (i.e. the contractual right to buy shares is created).
Holding period: In a Share Incentive Plan (SIP), a period during which Free, Matching or Dividend Shares normally cannot be withdrawn from trust. The period is usually three years but can be extended to five for Free and Matching Shares only.
ICAP: ICAP plc is a UK-based voice and electronic dealer broker and provider of post trade risk services, the largest in the world carrying out transactions for financial institutions rather than private individuals.
ICTA: The Income and Corporation Tax Act 1988 (sometimes known as the Taxes Act or TA 1988)
Independent (company): Not under the control of another company. A Limited Liability Partnership (LLP) is legally a body corporate and therefore a company controlled by an LLP is not independent.
ISDX: ICAP Securities & Derivatives Exchange that operates the ISDX main board regulated market, ISDX growth market for unlisted securities and ICAP secondary market trading both listed and unlisted securities.
ITEPA: Income Tax (Earnings and Pensions) Act 2003.
KPI: Key performance indicator.
Lapse: When the right to buy the shares at the exercise price (the share option) is lost.
Listed: In the context of the Taxes Acts this normally means listed on an exchange "recognised" by HMRC. These include The London Stock Exchange, most of the national bourses of the developed countries, but not the UK's Alternative Investment Market (AIM).
Listing Authority: The UK Listing Authority is a division of the Financial Conduct Authority and is responsible for regulating and approving applications for admission to the official list of the London Stock Exchange.
Long-Term Incentive Plan (LTIP): This may deliver shares of cash over a period, usually, of 1 - 10 years subject to performance conditions or KPIs - see here for more information.
Market value: If the shares are listed, an average of mid-market prices. If the shares are quoted but not listed, the market value may need to be adjusted to allow for distortions in the quoted price. Unquoted shares must be valued by a process of analysis. HMRC SAV can be contacted to agree the value of unquoted shares for tax purposes.
Matching Shares: (Share Incentive Plan [SIP]) Employer shares that can be appropriated in trust for an employee free of charge when the employee purchases Partnership Shares.
Model Code: A set of regulations issued by the Financial Conduct Authority which requires that "persons discharging management responsibilities" (PDMRs) should not normally deal in company securities during a prohibited period or close period.
Net relevant earnings: A person's income from employment plus taxable benefits in kind, less any allowable business expenses but before deduction of personal allowances. It appears that gains from unapproved options and other share incentive arrangements which are taxed as income can be included in net relevant earnings. This would not apply to gains subject to Capital Gains Tax (CGT).
National Insurance Contributions (NICs): "Primary" NICs are those paid by the employee; "secondary" NICs are paid by the employer.
Nil-cost options: Share options that can be exercised to acquire shares without payment being required as consideration.
Nomad: Nominated advisor. All AIM companies must have a nomad in place at all times that is approved by the London Stock Exchange.
Nominal value: The face value of a share. This is usually a nominal amount such as £1 or 1p. It bears no relation to the market value of the share but is determined by how the company's shares capital is denominated.
Official List: The list of securities that are quoted on the London Stock Exchange, together with details of transactions and pricing.
Ordinary resolution: A shareholder resolution requiring agreement by holders of a simple majority of the votes cast by shareholders (or in a case of a written resolution, a majority of the votes held by all shareholders).
Ordinary shares: Shares that confer rights to the income and or capital of a company, other than shares which have a right to receive a fixed income ("preference shares").
P11D: A return of expenses and benefits submitted to HM Revenue & Customs after the end of the tax year in respect of directors and employees earning more than £8,500 per year.
Participator: Broadly, any person who has or who is entitled to acquire, directly or indirectly or with associates any benefit from a company in relation to its share capital, voting rights, profits or debt obligations.
Partnership Shares: (Share Incentive Plan ("SIP")) Employer shares that an employee is permitted to buy from gross income under the Plan.
PAYE: Pay As You Earn (Income Tax).
Persons Discharging Management Responsibilities (PDMR): The directors and senior executives of a listed company who have regular access to information that could affect the share price and the power to make managerial decisions affecting the development and prospects of the company.
Phantom options: The employer agrees to make a cash payment to an employee, conditional on or related to movements in the value of company shares.
PLUS: A public stock market now known as ISDX.
Pre-emption rights: Rights of first refusal of existing shareholders when new shares become available for sale and/or when existing shares are to be transferred.
Preference share: Normally, a security with a right to a fixed dividend from the profits of a business paid in priority to the dividends on ordinary shares. The dividend rights can be cumulative, so that any unpaid amounts are carried forward. Preference shares cannot be used for statutory employee share schemes.
Premium Listing: A company listed on the London Stock Exchange which is required to meet the UK's super-equivalent listing rules which are higher than the EU minimum requirements. Companies which merely comply with the EU minimum standards have a "Standard Listing".
Private treaty: In this context, when the sale of shares is negotiated between the individual vendors and the prospective purchaser, usually in confidence. See also general offer.
Prohibited period: Under UK Listing Authority Rules, a close period or any other period during which there is unpublished, price sensitive information in relation to a company.
Public limited company: denoted plc, Plc or PLC. A company with an allotted share capital of at least £50,000 - £100,000, paid up as to not less than one quarter of the nominal value and the whole of the premium (the difference between the nominal value and the amount subscribed for the shares). Public companies may offer shares to the public and are more tightly regulated than private limited companies.
Qualifying corporate bonds: Debt securities that do not create a taxable capital gain or an allowable capital loss on disposal.
Quarter up price: For a listed share, the offer price (at which the market maker offers to buy the shares) plus one quarter of the difference between the offer price and the bid price (at which the market maker offers to sell the shares).
Ratchet: An investment structure where the rights attaching to some or all of the company's shares become more valuable if the company achieves pre-set performance targets, or vice versa. For example, the value of equity held by management may be reduced by causing part of their equity to convert into worthless deferred shares; or increased if part of the equity held by venture capital backers converts into worthless shares.
Readily convertible asset: (definition applied to a security for tax purposes) A share is a readily convertible asset if it can be converted to cash through sale on a public market, or to an employee trust or by another means (e.g. to an acquirer if the company is being sold), or if conversion arrangements are likely to come into existence (e.g. a firm plan to float). Shares are also deemed readily convertible if they are in a subsidiary of a non-listed parent or their value when transferred to employees is otherwise not eligible to be set against taxable profits.
Recognised stock exchange: A stock exchange included on a list of recognised exchanges published from time to time by HM Revenue & Customs and available on its website. Most significant national exchanges are included. The UK's AIM market is not included. The term "recognised investment exchange" is used by the Financial Services Authority and has a wider definition in the UK, including both the AIM and ISDX markets.
Residence: There are now statutory residence tests for individuals. There are 4 auotmatic UK residence tests. These are detailed, here.
Restricted shares: Shares which have restricted rights, for example a provision for forfeiture if loyalty or performance targets are not met, or a restriction on the holder's ability to sell.
Shares and Assets Valuation (SAV): a branch of HM Revenue & Customs that negotiates share values for tax purposes.
Save as You Earn (SAYE) Option Scheme: A statutory scheme where the cash to exercise a share option is accumulated through a save-as-you-earn savings scheme.
Small Companies Enterprise Centre (SCEC): The HMRC office that deals with the registration of, and enquiries relating to, EMI share options (among other matters).
Scrip or bonus: (issue of shares) An allotment of free new shares to existing holders in proportion to their holdings. Also termed a capitalisation of reserves. Since by law shares cannot be allotted for no consideration, they must be paid up first by the company.
Share appreciation rights: Where the profit on the exercise of a share option is satisfied by the issue of shares. This requires fewer shares than those needed for full exercise of a conventional option.
Share Incentive Plan (SIP): A statutory all-employee share scheme under which employees are appropriated shares in trust, and/or have the opportunity to purchase shares - see here for more information.
Share option: The right (but not the obligation) to acquire a share, usually at a future date or dates, at a price or on terms agreed at the time the option is granted.
Similar terms: The requirement that awards can be varied from one employee to another only in relation to certain specified variables.
Small or Medium sized Enterprise (SME): as defined in EU law and broadly based on number of employees (fewer than 250) and turnover (up to €50m) or balance sheet total (up to €43m).
Special resolution: A shareholder resolution passed by a majority of at least 75 per cent. of shareholder votes cast. Required for important decisions such as changes to the share capital or articles of association. See also written resolution.
Statutory/non-statutory: (employee share schemes) Statutory share schemes are defined in law. They offer certain tax and other advantages but are subject to limits and regulations. Non-statutory schemes have no specific tax advantages but their terms and the levels of award are not limited by regulations.
TCGA 1992: The Taxation of Capital Gains Tax (CGT) Act 1992.
The UK Corporate Governance Code: A code of good practice for UK listed companies published by the Financial Reporting Council in relation to issues such as board composition, remuneration, accountability and audit and relations with shareholders. It incorporates the findings of several earlier reports such as the Higgs and Smith reports on non-executive directors and audit committees respectively.
Treasury shares: Shares held by a company in itself.
UITF: Urgent Issues Task Force (a committee of the UK Accounting Standards Board).
Unapproved share option: a share option that is granted otherwise than under a statutory (or tax advantaged) share option arrangement.
UK Listing Authority: The UK Listing Authority or UKLA is the name given to the Financial Conduct Authority when acting as a securities regulator. The UKLA issues the Disclosure and Transparency, the Listing, and the Prospectus Rules with the overall aim of investor protection and fostering appropriate professional standards.
Vested/vesting: When a right to acquire shares is capable of being exercised. See also accelerated vesting.
Written resolution: A shareholder resolution of a private company which is signed by the shareholders instead of being passed at a shareholders' meeting. Written resolutions can be ordinary resolutions (passed by a simple majority) or special resolutions (a 75% majority) but the majority is measured in relation to total voting rights, not merely the number of votes cast.
Under water: (of a share option) When the exercise price of a share option is higher than the value of the underlying share.
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