Share Schemes
What are share schemes?
Share option schemes are a way for companies to offer their employees, advisors, freelancers, and consultants the opportunity to purchase company shares at a future date, often at a predetermined price. These schemes are designed to align the interests of the employees with those of the company, encouraging long-term commitment and performance.
Types of Share Option Schemes
- Share Incentive Plans (SIPs): These plans allow employees to buy shares directly from their pre-tax salary, often with matching shares provided by the employer.
- Save As You Earn (SAYE): Employees can save a fixed amount each month for a set period, after which they can use the savings to buy shares at a discounted price.
- Company Share Option Plans (CSOPs): Employees are given the option to buy shares at a future date, usually at the current market price, with certain tax advantages if held for a specified period.
- Enterprise Management Incentives (EMIs): Targeted at smaller companies, these schemes offer significant tax advantages and flexibility in granting share options to key employees. See our page about EMI.
- Non Tax Advantaged: Where a tax advantaged scheme is not suitable or practical, a non tax advantaged scheme can be used. Whilst there are less barriers to entry, the tax implications can be prohibitive if not structured carefully.
Benefits of Share Option Schemes
- Employee Motivation: By offering a stake in the company, employees are motivated to work towards the company’s success.
- Retention: Share options can help retain key employees by providing long-term incentives.
- Tax Advantages: Certain schemes offer tax benefits, reducing the overall tax burden for both the company and the employees.
Considerations
- Eligibility: Not all employees may be eligible for every type of scheme. Companies often have specific criteria for participation.
- Tax Implications: While some schemes offer tax advantages, others may have tax implications that need to be carefully considered.
- Market Risk: The value of shares can fluctuate, and there is no guarantee that the share price will increase.
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