digi.me | GSP
A Growth Share Plan enabled digi.me to account for non-employee participants in their share planning
The client’s situation at the start of the story
digi.me was incorporated in 2009 and uses groundbreaking technology to allow consumers to gather together, in a secure environment, information such as social, health, financial, telco and fmcg data from a variety of sources and locations and share it privately on their terms, using the company’s bespoke Consent Access process.
The company had successfully attracted significant funding over the years, including from Enterprise Investment Scheme (EIS) investors, all of which had been invested directly into the company to develop technologies and reach out to new markets. By 2016, the company had agreed with investors for a 10% equity pool to be set aside for existing and future employees and executives. Equity incentives were to be discretionary and potential participants included a variety of employees and non-employees, and UK and non-UK based individuals.
It was essential that the EIS status of the company remain undisturbed by any proposed share plan. It was also of importance that the share plan only delivered rewards based on future growth in the Company’s value.
Why was the client eligible for the specific share plan?
The Company was eligible for Enterprise Management Incentives (EMI). However, some of the participants were not employees so would not qualify.
In order to ensure that the proposed share plan only delivered a share in the future growth in value to participants, a Growth Share Plan (GSP) was proposed. This involved the creation of a new class of shares that would only share in sale proceeds once a certain threshold had been exceeded.
The EIS investors had invested in ordinary shares. EIS companies are limited in terms of different share classes that can be used because the EIS shares cannot be seen to have preferential rights over other share classes, in particular in relation to dividends and the distribution of assets on a winding up of the company.
Shortly after RM2 was instructed on this matter, a high profile case highlighted the risks to companies that created a new share class that resulted in the existing ordinary shares carrying preferential rights, however inadvertently and however unlikely the preference was likely to arise.
What did RM2 to help?
RM2 advised on the grant of EMI options over a new class of growth shares to qualifying employees, and the direct subscription for growth shares for those individuals that did not qualify for EMI.
In addition to drafting the documentation, including advising on tailored vesting conditions for the participants, we also amended the company’s Articles of Association to create the new growth share class, liaising with the company’s EIS advisors to ensure that the EIS investors’ tax treatment was not lost as a result. We also agreed the share valuation with HMRC prior to the awards and grants being made.
RM2 currently administers the company’s EMI option arrangements by way of HMRC’s online ERS portal.
Roger Goscomb
COO & CFO, digi.me
“RM2 supported us right through the entire process from inception to registration of the scheme. The RM2 staff were knowledgeable and made themselves readily available to answer a number of queries that arose. A second share scheme is being muted and we shall certainly consider using RM2 again.”