Options or Shares – which should you choose?
When you’re setting up a share scheme for employees, one of the first questions you’ll want to ask is whether you should offer direct shares or share options.
What are the key differences between shares and options? A quick summary is set out below:
A Share gives employees a direct shareholding in the
company with all the rights attaching to that share
|An Option gives employees the right – but not the|
obligation – to buy a share in the future, but at a price fixed today
Whether or not an option or a share is appropriate will depend on the objectives of the share scheme and, in many cases, the employees themselves. It may not be particularly motivational for lower paid or junior employees to pay “up front” to acquire a share, and unless dividends are likely to be significant it may not be very attractive even for more senior employees.
Nonetheless, paying something to acquire shares may demonstrate a real commitment to the business, and some companies prefer senior managers to have some “skin in the game”.
It is worth noting that whether your employees are awarded shares or options, the company must make an annual share plan return via HMRC’s employment related securities website.
For more guidance on the best share plan for you and your employees, contact us on 0208 949 5522 or email on firstname.lastname@example.org