16 technology Sharing growth with employees


Growing technology companies often want to use their shares to incentivise employees, says Penningtons Manches senior associate James Went


The challenge is to think creatively to maximise the incentive value while minimising the adverse tax consequences and generally looking after the interests of shareholders.


Enterprise Management Incentives (EMI) options are usually the most advantageous type of share incentive scheme. They combine a high level of flexibility together with favourable tax treatment that includes a relaxation of the qualifying conditions for Entrepreneur’s Relief on a disposal. However, the company or the employee may not always qualify – possibly because the company has grown too big.


An alternative is “growth shares”. These are a separate class of shares which only entitle the holder to benefit from growth in the company after the date of issue or when a particular exit value has been achieved. The effect of these qualifying criteria is that,


on issue, the value of the shares is substantially lower than that of the ordinary shares in the company, perhaps purely nominal.


The employee can subscribe for the shares at minimal cost and, if the criteria are achieved, share in the success of the company with any gain on the shares being taxed at capital gains rather than income tax rates. Structuring these growth share schemes is a complex task and there is a degree of risk because the value of the shares cannot be agreed with HMRC before they are issued and HMRC will argue for income tax treatment on a disposal if the rights are not properly structured. However, they have significant advantages over unapproved options and other alternatives to EMI.


Since employees will hold growth shares from day one, companies should think carefully about how they will manage the issues that


Is your business at risk of


can arise from having employee shareholders (as opposed to options which can be cancelled when the employee leaves). Typically, if an employee shareholder leaves the company, the growth shares should be recovered from the employee so that value is not going to someone who is no longer contributing to the business.


Robust and flexible provisions need to be included in the agreements with employees and the company’s articles of association in order to ensure that those shares can be brought back into the company’s control and perhaps be redistributed to other employees. Recent changes in company law have made buying back shares for this purpose substantially easier.


For more information on how technology companies can implement growth shares and other employee incentive


a cyber-attack? UK micro businesses are not ready for cyber-attacks, a survey by Kaspersky Lab has found. Although mobile devices have heavily penetrated the business world, and most businesses rely on their computers to store critical information, many UK small firms believe they could never be hit by a cyber-attack. Some 82% consider themselves too small to be a target, writes Dominic Preist of Jelf


The study covered micro firms operating in various industries – from hairdressers to builders, doctor’s surgeries and legal firms. It found that 31% said that they don’t have an emergency plan if they were to be hit by a cyber-attack. Four in 10 firms worry that recovery of lost data would prove difficult, and a quarter say they wouldn’t be able to recover it at all.


Just how real is the threat? According to government research more businesses than ever are facing the threat of losing confidential information. The research identified:


• 87% of firms employing up to www.businessmag.co.uk


50 staff had experienced a cyber- security breach and the trend is on the increase.


• The average cost of the worst breach for small companies was between £35,000 and £60,000.


• Some attacks caused more than £1 million of damage.


Top tips on how to reduce your cyber risk


1 Invest in, and regularly test, your network security and infrastructure;


2 Protect information with an internal ‘need-to-know’ policy. If


storing information on a central file server, manage who has access to these files.


3 Encrypt important information for extra security so that only authorised users will be able to access it;


4 Develop an email policy and raise online security awareness with employees. Follow up on suspicious emails even if they’re a one off;


5 Make it protocol for employees to use numbers and letters in passwords and change your passwords regularly


6 Back up your files


7 Lock servers in a room and move laptops into a secure drawer at the end of a working day.


Make sure you are covered


It is increasingly important for businesses to evaluate all the risks they face, and include IT security and protection requirements in their overall contingency strategy. An area to consider is whether your insurance continues to keep pace with your hardware, software and infrastructure developments.


Also, be mindful of the need for THE BUSINESS MAGAZINE – THAMES VALLEY – NOVEMBER 2014


robust contingency plans and ensure that you have a process in place to help you get back up to speed if the data and systems that you need to trade are affected.


Jelf Insurance Brokers has over 90 years’ experience helping Thames Valley-based businesses protect themselves. If you would like to find out how Jelf could help you and your business, contact Dominic Preist, details below.


Details: Dominic Preist 07595-651140 dominic.preist@jelfgroup.com www.jelfgroup.com


Jelf is a trading name of Jelf Insurance Brokers Ltd*, who are part of Jelf Group plc (Reg No. 2975376) which is registered in England and Wales at Hillside Court, Bowling Hill, Chipping Sodbury, Bristol BS37 6JX. *Authorised and regulated by the Financial Conduct Authority (FCA). Not all products and services offered are regulated by the FCA.


arrangements to deliver best value for the business and its shareholders, contact Penningtons Manches’ corporate team.


Details: James Went 01865-722106 james.went@penningtons.co.uk www.penningtons.co.uk


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