A Deferred Share Purchase Plan ("DSPP") can help a company incentivise and engage those integral to nurturing growth.
About the Deferred Share Purchase Plan
A DSSP works by providing selected participants with a more affordable way to acquire shares.
It is an excellent choice if a company is keen for those participating to take on a certain degree of risk, or as a method of offering tax favourable share awards to non-employee consultants and non executive directors. The tax benefit arises after the acquisition price has been paid and the shares are subsequently disposed of, as any gains fall under the favourable capital gains tax regime.
Individual performance conditions can be designed into the plan, helping to ensure rewards are only distributed when key corporate objectives have been met.
Benefits of a Deferred Share Purchase Plan
The Deferred Share Purchase Plan is one of the most flexible share schemes currently available, and the go-to choice when looking to incentivise non executive directors.
Since its introduction, the RM2 team has helped numerous companies to:
- Motivate participants to work beyond short-term goals
- Reward participants on a tax-advantaged basis (Entrepreneurs’ Relief available, provided the necessary conditions are met)
- Promote long-term retention of key individuals
- Encourage growth by linking awards to performance conditions
- Attract top candidates to companies
- Level of risk for participants creates an immediate personal guarantee
For more detailed information on the benefits and limitations of a Deferred Share Purchase Plan, please download our fact sheet, or call 020 8949 5522 to speak with one of the team.
How we can help
At RM2, we believe in taking a consultative approach to building share plans and finding out precisely what our clients are looking to achieve. This approach helps us to deliver a professional and effective service, helping clients meet their goals and plan for the future. Our highly experienced team are well positioned to guide your company through every stage of the share scheme process, including:
The design will flow from your objectives, so the more precise you are the better. What is your business plan, and what you need from your employees to execute this plan successfully? Do you want to focus people on an exit? Do you want to reward all employees as a team? Do you have just one key recruit in mind? We will ask you lots of questions to tease out your objectives.
At this stage you will need to decide on any rights and conditions to attach to shares, such as performance conditions and leaver provisions. Don’t worry: we’ll recommend features for you. A key decision is the amount of equity you want to set aside for share schemes. We’ll help you with an indicative valuation and some equity modelling.
Once the design and modelling are complete, we will work through your company structure and identify what changes need to approved by shareholders. We will then prepare resolutions to be passed and work with you to obtain approval from shareholders.
The core of a share scheme is the set of rights and restrictions attaching to shares, and these are set out in the articles of association. We will prepare amendments so that these rights and restrictions strike the right balance between delivering value to employees and protecting the interests of other shareholders.
The share valuation can have an enormous impact on how employees are motivated and the tax treatment of the shares. We will prepare a valuation and agree this with HMRC. Just as importantly, we can help understand the meaning and implications of that valuation, and how you should adapt your strategy according to the result.
Communicating information about your share scheme to all the participants is vital its success. As standard, we will provide all clients with easy-to-follow notes explaining your scheme. We can provide further help and guidance on how to effectively promote your scheme if you wish.
Once your scheme is implemented it will need to be administered to ensure it remains compliant. We have the most experienced Operations team for share schemes in the UK, so you can be confident that your scheme is in capable hands.
We try to be as proactive as possible when it comes to monitoring your scheme’s performance. We can help improve any equity-based arrangements. You and we are always learning.
Once an employee share plan is implemented, it is vital that it is administered effectively to ensure that:
- your share plans remain compliant
- all relevant documents are filed online with HMRC
- the intended tax benefits are achieved
- employees are kept aware of their awards and the benefits
- your share plans remain relevant
We have successfully designed, implemented and administered over 1,150 share plans across a range of sectors, so you can rest assured your plan will be in the best possible hands.
If you would like to find out more about how a Deferred Share Purchase Plan can help your business, why not call a member of our team directly on 020 8949 5522, download our fact sheet or send an email to firstname.lastname@example.org.
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