A JSOP is a way to enable key employees or directors in a company (participants) to buy a small stake and share in the increased value achieved, usually by way of hitting targets.
The participants will buy a block of shares jointly with a trustee, usualy the trustee of an Employee Benefit Trust (EBT).
The participants will usually pay the fair market value (as agreed with HMRC) for their part, but initially it will be a small part of the block of shares and will have a comparitively low value.
At the start the joint owner has the right to most of the block of shares. The participant has the right to most of the increase in value, i.e. the 'hope-value'. This means the joint owner pays the majority of the initial cost.
Consultants and Non-Executive Directos (NEDs) can be participants but they must always pay for their benefits. Employees or former employees could be given their interest by the trustee.
For the participant, a key benefit is they will only pay a small amount up front but there is potential for gains as shares increase in value. Any such gains should be subject to Capital Gains Tax (CGT).
For the company and shareholders, they can incentivise key employees and directors to grow the value of the shares without being exposed to uncapped National Insurance and PAYE obligations. In addition, they may also introduce performance conditions.
The participants' rights can be subject to a performance hurdles. For example, if the annual increase in the share value prior to sale is less than, say, 5% per annum, the participant receives nothing. There is no right for the participant to take their benefits eithin, say, 3 years; or no entitlement to profit arises unless there is a specific sale, listing, or due exit events.
These limitations would reduce the initial market value of the participants' rights reducing the initial cost and targeting the incentive. The participants' interests can be recovered on ceasing employment or if any performance conditions are not met.
There are no eligibity criteria surrounding the implementation of a JSOP.
There are no statutory limits but usualy company law, securities law, and employment law issues are relevant.
There is no guaranteed return under a JSOP. Participants will need to make an investments, even if proportionately small, and will only benefit if growth and other targets are achieved. Unlike a Flowering Share Purchase Plan (FSPP), that also targets growth is share value, a JSOP requires an EBT with a trustee to act as a 'joint-owner'. This creates an additional cost to set up and maintain.
For those companies that do wish to implement a JSOP, RM2 Trustees have extensive experience acting as UK based corporate trustees of EBTs, or we work effectively with offshore trustees where appropriate.
We will take careful consideration of your individual requirements and objectives before providing a quote. A JSOP is one of the most technically complex plans and is therefore more time consuming and expensive to design and implement.
We typically operate on a fixed fee basis, which allows us to be up front with our clients about the total costs involved with the process from the start, instead of being a meter running arrangement.
We are proud to offer a tailored service, and do not believe in a one-size-fits-all approach.
If you would like a free consultation to discuss how a JSOP may operate within your business, please contact RM2 directly on 020 8949 5522, or via firstname.lastname@example.org.