Growth Share Plan

Our experienced specialist team can help you set up and manage a Growth Share Plan tailored to your business needs. Get in touch for a free consultation today.

How we can help with Growth Share Plans

RM2 are the leading employee share scheme advisers specialising in all types of Share Plans (including Growth Share Plans). We are market leaders in offering bespoke Employee Share Scheme services.

We take a unique consultative approach to building share plans by finding out what our clients are looking to achieve. This allows us to deliver a professional and effective service personalised to the needs of your business and its employees.

Frequently Asked Questions

Growth Shares are a class of shares that are created so that, when a company is sold or any other form of liquidity event arises, they will only receive any sale proceeds beyond a certain set amount, commonly known as a “hurdle”.  They are usually put in place to protect existing value in a company that has been created by founders or other shareholders to a certain point, whilst offering cost and tax efficiencies to participating employees. The hurdle is usually set at premium to the company’s value at the time of award to ensure that any rewards are subject to achieving stretching targets and delivering significant increased growth in company value.

Growth shares can work in two ways:

  1. Where Growth Shares are awarded under a standalone Growth Share Plan, participants will purchase this special class of share directly and become shareholders in the company. The Growth Shares will initially have a relatively low market value in comparison to other share classes because of the hurdle that is attached. It’s common for Growth Shares to be structured without voting rights or dividend rights, which can reduce that initial value further. Growth Shares will only typically deliver capital value to the participants on a future liquidity event above the hurdle value.
  2. Alternatively, if companies qualify, it is possible to grant tax-advantaged Enterprise Management Incentive (EMI) or Company Share Option Plan (CSOP) options over Growth Shares. This has several advantages.  Firstly, employees do not have to buy shares at the outset or create any up-front tax liabilities, but can choose to exercise options in the future, typically at the time of an exit or other realisation event, which means there is a reduced financial risk for employees.  Secondly, if employees leave before an exit event, it is easier to “lapse” an option than it is to buy existing shares back from leavers.  Thirdly, it is possible to agree the value of the Growth Shares with HM Revenue & Customs before options are granted and – this is not possible for a standalone Growth Share Plan.  Finally, EMI and CSOP options carry specific tax advantages for both participating employees and their employing companies.

In addition to the tax and commercial considerations that are specific to Growth Shares, employee share plans of all types can have a positive impact on employees who can see the potential of personal gain if the company succeeds.  They tend to be motivated to work harder and smarter, contributing to growth in the company’s value and seeing a clear alignment between their personal objectives and the company’s mission.

By offering Growth Shares, you not only motivate, build loyalty and commitment among employees, but also attract and retain top talent.

Research shows that equity-based compensation also leads to better long-term performance. By giving employees a financial stake, they put in extra effort, collaborate effectively, and boost overall company performance. Plus, as the company grows, so do the employees’ financial interests, duly incentivising them to stay in the business long-term.

Growth Share Plans can be a boon for companies that don’t qualify for HMRC recognised tax advantaged share plans such as EMI and CSOP.  For example, subsidiary companies can use Growth Shares to motivate employees without using the share capital of the parent company; in addition, businesses under the control of external investors, including private equity firms, can also benefit.  In some cases, where companies might qualify for EMI or CSOP, they may find that the financial limits attached to those tax advantaged plans are insufficient to deliver meaningful equity value to key staff:  in particular, larger companies that can’t use EMI options may be limited to CSOP option grants over shares with a value of £60,000 to any one individual.  By using Growth Shares, it’s possible to deliver option awards with a low value at the outset (thus maximising valuation limits), but with the promise of significant return once hurdles are exceeded.

In comparison to non-tax advantaged share options, cash bonuses, and phantom share options, Growth Shares offer a much better and tax efficient solution for rewarding the workforce. Employees who pay the full market value for their Growth Shares (valued at the time of award) are not liable for Income Tax or National Insurance contributions (NICs). Future growth in share value is then usually subject to more favourable CGT rates – typically at a rate of 20%, and with the possibility of taking advantage of CGT annual exemptions.  Using Growth Shares within the wrapper of an EMI plan can also provide a 10% CGT rate as it is possible to take advantage of Business Assets Disposal Relief if the options were granted at least 2 years before the shares are sold. Employing companies may also make employer’s NICs savings as well when compared to non-tax advantaged share options, cash bonuses and phantom share options.

Although there are no legal restrictions in place preventing companies from setting up their own Growth Share Plan, we would strongly advise against it due to the commercial, legal, tax, valuation and accounting implications associated with a Growth Share Plan. There are also important compliance and administrative activities that need to be completed correctly to make your Growth Share Plan legally and tax compliant.  

Working with employee share scheme experts helps you ensure that your selected plan is not only a good fit for your business and employees, but that it is economically feasible and does not pose unnecessary financial risks. Both HMRC and any future investor in/acquirer of any company will have a keen interest in how its employee share plans have been implemented and operated. Having specialist legal and tax knowledge on your side is also valuable when it comes to drafting plan documents, preparing and agreeing share valuations, employee communication materials and Growth Share subscription agreements. 

Client Testimonial

A massive thank you to you, and to your fabulous team, for a smooth and timely launch. It was expertly managed through and we are really pleased with the result.

Want to know more? Download free information on each share plan & the employee ownership trust

Understanding our Growth Share Plan process

Our highly experienced team are well positioned to guide your company through every stage of the Growth Share Plan implementation process, including:

Our Growth Share Plan design work builds upon our understanding of your business objectives, so the more precise you can be during this stage the better. Our Growth Share team will ask you lots of questions to tease out your objectives including:

  • What is your business plan?
  • What are your long term shareholder objectives?
  • Do you want to reward all employees as a team or just selected employees?
  • What do you need from your employees to execute your business plan successfully?

The core of any Growth Share scheme is the set of rights and restrictions attaching to the Growth Shares, and these are set out in the company’s 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. These are vital for ensuring that your Growth Share Plan is commercially effective and tax/legally compliant. Where Growth Shares are to be used in conjunction with an EMI or CSOP we will also help you design the rights and restrictions applying to the options, including any relevant exercise triggers and leaver provisions. We draft all relevant legal paperwork to match the agreed design.

Your share valuation will have a significant impact on the financial and tax treatment of the Growth Shares and the potential value delivered to employees. Our team will work with you and an expert valuer to prepare valuations for your company shares, including agreeing the value with HMRC if an EMI or CSOP is used.  Depending on the results of an initial valuation assessment, our experts will advise you of the commercial and tax implications and how you can adapt your plan design according to the results.

RM2 can provide communications support to your employees so that they fully understand what a Growth Share Plan is and the associated benefits/conditions. We will provide easy-to-follow notes explaining your Growth Share Plan in simple terms to employees and if required, provide educational webinars or on-site workshops that allow your employees to ask questions and encourage participation in your plan.

Once your share plan is implemented it is vital that it is administered properly on an ongoing basis to ensure that it remains legally compliant and in line with HMRC’s strict regulations on employee share schemes. RM2 have the most experienced compliance and administration team for share schemes in the UK so you can be confident that your share scheme will be efficiently managed and in capable knowledgeable hands.

Our team are as proactive as possible in monitoring your scheme’s performance; offering recommendations for improving your equity-based arrangements and developing your Growth Share Plan as your company grows or goes under changes such as change in management or leadership.

Why choose RM2 as your Growth Plan advisers?

We have the most experienced team of advisers dedicated to private and smaller listed company employee share schemes in the UK.

We understand that a ‘one-size-fits-all’ approach to a Growth Share Scheme will rarely meet a client’s objectives, so we will work in partnership with your business to create a bespoke plan tailored to your goals.

Our team consists of a wide range of skilled professionals (including solicitors, accountants and share plan administrators) to help guide you through the Growth Share Plan set-up process and ensure that your final plan is being managed effectively once launched.

At RM2, we believe in taking a consultative approach to building share plans by finding out precisely what our clients are looking to achieve. This helps us to deliver a professional and effective service that helps clients meet their specific goals and plan for the future.

We are well positioned to guide your company through every stage of the share scheme implementation process, from strategically planning the design of your share plan to administering it according to the UK government’s guidelines and providing ongoing compliance and administrative support.

Meet the team

John Dormer

Share Incentives Director

Rachel Doex

Project Manager

Sarah Anderson

Business Development Manager

Get in touch for a FREE Growth Share consultation

If you are interested in creating a Growth Share Plan for your company or would like to chat about other employee share schemes that may be available to you, get in touch today to enquire about our free consultations for businesses.

Our consultations can take place over the phone or via video call and allow you to ask an experienced member of our team questions about Growth Share Schemes, our services, and the set-up costs (as our charges will vary depending on factors like the size and complexity of your business and likely plan features).

Ask about our free consultations for businesses by calling us on 020 8949 5522 or by filling out the form below to request a call back from our team.

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