Glossary
The Anti-Avoidance Group of HM Revenue & Customs.
Association of British Insurers.
Where a share option becomes capable of exercise earlier than normally permitted by the vesting schedule or performance conditions.
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.
The Alternative Investment Market, a public market run by the London Stock Exchange. Its information and reporting requirements are less stringent than those for the main Exchange.
Where a company issues new shares to a person, usually in return for cash (but see scrip).
(Share Incentive Plan) When shares are allocated in trust for the benefit of a named employee.
For share schemes other than EMI, 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. Note that for EMI schemes, siblings are not associates.
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).
An employee who leaves employment and is not a good leaver.
In general terms, assets used for business purposes including, in relation to employee share schemes, the shares of an unlisted company or an employing company. The term ceased to be relevant following the abolition of taper relief in the Finance Act 2008.
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 per cent. of the equity is quoted.
A period prior to the company's release of its interim or preliminary results, during which London Stock Exchange Model Code for Directors' Dealings does not permit directors or senior managers to trade in the shares of their companies. This period is normally 60 days, or, if shorter, the period from the relevant financial period end up to and including the time of such publication. The ABI guidelines are more restrictive.
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 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. This definition is regarded as distinct from the definition of control contained in section 416 ICTA 1988 which refers specifically to rights over share capital or assets (although it also refers to control in the general sense).
A statutory share option scheme.
A non-statutory arrangement where an employee acquires shares at fair value, but pays only a small initial deposit.
The reserves of a company available as distribution from profit, normally representing the accumulated profits of the business less losses.
(Share Incentive Plan) Employer shares that can be appropriated to an employee for whom shares are already held in trust; as an alternative to paying cash dividends.
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.
The European Economic Area: consists of the countries of the European Union plus Norway, Iceland and Liechtenstein.
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 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.
Employee Share Ownership Trust (ESOT)
Broadly, another name for an employee benefit trust.
Employee Shares and Securities Unit (ESSU)
An office of HM Revenue & Customs which deals with statutory and non-statutory employee share schemes.
A controlling shareholding in a company held by employees or directors of that company (together with any employees or directors of subsidiaries).
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 statutory share option scheme.
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 per cent. on the first £10 million of gains.
Strictly "employee share ownership plan" or any share incentive plan that provides employees with direct share ownership. Also the name of the Share Incentive Plan prior to October 2001.
exercise
When the options are exercised and the shares are bought at the agreed price on the date of grant.
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.
Financial Services Authority (FSA)
An independent organisation, established by government, responsible for regulating virtually all UK financial services markets, exchanges and firms.
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.
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.
FRSSE
The Financial Reporting Standard for Smaller Entities.
(Share Incentive Plan) Employer shares appropriated under the Plan in trust for an employee free of charge to the employee.
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.
In relation to a Share Incentive Plan or 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).
In a Share Incentive Plan, 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.
ICTA
The Income and Corporation Tax Act 1988 (sometimes known as the Taxes Act or TA 1988)
independant (company)
Not under the control of anotehr company. A Limited Liability Partnership (“LLP”) is legally a body corporate and therefore a company controlled by an LLP is not independent.
Income Tax (Earnings and Pensions) Act 2003.
lapse
When the right to buy the shares at the exercise price is lost.
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, and NASDAQ but not the UK's Alternative Investment Market (AIM).
The UK Listing Authority is a division of the Financial Services Authority and is responsible for regulating and approving applications for admission to the official list of the London Stock Exchange.
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.
(Share Incentive Plan) Employer shares that can be appropriated in trust for an employee free of charge when the employee purchases Partnership Shares.
A set of regulations issued by the Financial Services Authority which requires that "persons discharging management responsibilities" (PDMRs) should not normally deal in company securities during a prohibited period or close period.
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.
National insurance contributions. "Primary" NICs are those paid by the employee; "secondary" NICs are paid by the employer.
Share options that can be exercised to acquire shares without payment being required as consideration.
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.
The list of securities that are quoted on the London Stock Exchange, together with details of transactions and pricing.
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).
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").
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.
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.
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.
(Share Incentive Plan) Employer shares that an employee is permitted to buy from gross income under the Plan.
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.
The employer agrees to make a cash payment to an employee, conditional on or related to movements in the value of company shares.
A public stock market which is generally regarded as junior to both the London Stock Exchange and AIM. However, the market has "Recognised Investment Exchange" status from the Financial Services Authority and over 1,000 small and mid-cap company shares currently trade on it, representing a combined market capitalisation of nearly £200 billion.
Rights of first refusal of existing shareholders when new shares become available for sale and/or when existing shares are to be transferred.
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”.
In the context of this Guide, when the sale of shares is negotiated between the individual vendors and the prospective purchaser, usually in confidence. See also general offer.
A statutory scheme: employees could receive free shares or purchase shares in the employer. No longer available.
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.
denoted plc, Plc or PLC. A company with an allotted share capital of at least £50,000, 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.
Debt securities that do not create a taxable capital gain or an allowable capital loss on disposal.
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).
An investment structure where the rights attaching to some or all of the company's shares become more valuable if the company achieves preset 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.
(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 acquiror 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.
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. NASDAQ is included but the UK's AIM market is not. 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 PLUS markets.
The definition is complex and based on a mix of case law and HMRC practice. In general, visitors to the UK will be ordinarily resident if they visit regularly for an average of 91 days per tax year for four years (a "day" includes an overnight stay), decide to become regular visitors or residents, or take up full time residence for three years or more. One test of residency is whether the individual buys or leases property.
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.
Must be the same for men and women. For statutory SAYE Option Schemes, the age can be set at between 60 and 75 years; for the CSOP Scheme it must be not less than 55 years and for Share Incentive Plans not less than 50 years, in each case at the discretion of the employer.
Shares and Assets Valuation: 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.
(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.
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.
A statutory all-employee share scheme under which employees are appropriated shares in trust, and/or have the opportunity to purchase shares. Known as an ESOP prior to October 2001.
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.
The requirement that awards can be varied from one employee to another only in relation to certain specified variables.
SME
Small or Medium sized business.
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.
(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.
A relief abolished in the 2008 Finance Act which reduced the rate of capital gains tax on a disposal of a business asset in relation to the length of ownership; the effective rate was 10 per cent. after two years.
The Taxation of Capital Gains Tax Act 1992.
The Combined Code on Corporate Governance
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.
Shares held by a company in itself.
Urgent Issues Task Force (a committee of the UK Accounting Standards Board).
UK Listing Authority
The UK Listing Authority or UKLA is the name given to the Financial Services 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.
When a right to acquire shares is capable of being exercised. See also accelerated vesting.
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 per cent. majority) but the majority is measured in relation to total voting rights, not merely the number of votes cast.
(of a share option) When the exercise price of a share option is higher than the value of the underlying share.
