Employee Share Plans can be exceedingly complex in nature

Posted by RM2 at 16:46 on 21 Jan 2020

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From time to time, we get requests from companies who’ve established, or started to establish, a share plan for employees, only to get stuck on the nitty gritty of making the awards, or managing the scheme afterwards.

Employee share plans can range in complexity but whatever type of share plan you’re setting up, it’s easy to lose your way in some of the detail. And, frankly, some of the process can be a bit tedious and time consuming, especially when there is more urgent business-related work to get on with it.

Because we specialise in share plans, not only can we manage the detail for you, but we positively enjoy doing it! Here are some areas where we’ve helped clients to get back on track:

Plan registration and annual returns. If you’ve set up a share plan for employees, you will need to register this with HM Revenue & Customs on their online Employment Related Securities (ERS). Furthermore, once the plan is registered, you’ll need to submit an annual return, even if there’s been no activity associated with the plan (in that case you need to send in a nil return). We carry out this work for many of our clients, making sure all deadlines are met. If you’ve failed to manage your returns in the past, we can quickly help you get back on the straight and narrow with HMRC, avoiding future stress (and fines).

Contractual binding commitments to employees. It’s not uncommon for companies to make promises to new joiners about share options. Our advice is always not to do this but if promises have already been made, the best advice is to identify and clarify what’s been offered, and proceed with a plan sooner rather than later. We can work with you to deliver the scheme that’s in the best interests of the company and the employees – a better outcome than disgruntled employees or, in the worst case scenario, potential legal action against you for failing to deliver on contractually binding financial commitments.

Healthcheck in preparation for sale. One of the first things any acquirer of a business will do is to carry out a due diligence exercise on your company, which will include any share plans. If there are any gaps, these will be quickly identified – and if there is any risk associated with the scheme (typically related to potential loss of tax advantages) you may find yourself subject to price chipping and/or onerous warranties. It’s best to ensure your plan is in a good place well before any sale negotiations start. We can review your plan to help you identify any missing pieces of the jigsaw, and to take any corrective action that might be required (e.g. documents that aren’t just legally watertight but also in line with HMRC best practice). At the end of the process, you will have in place a plan that is fully compliant and ready to roll forward, including in a sale scenario.

It’s very frustrating to have spent time and effort to design and establish a share scheme be it an Enterprise Management Incentive (EMI), Company Share Option Plan (CSOP) or Share Incentive Plan (SIP), only to find that the final steps haven’t been completed properly. If your plan has got “stuck”, we can help you get it over the line; if it’s already in place but you’re worried about compliance, we can help you get it in good shape. It’s very unusual for us not to be able to find a sensible commercial answer to “broken” share plans.

If you’ve got stuck in the process, or if you’re worried about whether your share plan is operating correctly, get in touch on 0208 949 5522 or email us at operations@rm2.co.uk