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    9 views4 pages

    ESOPs Trusts Trustees PDF

    Uploaded by

    Tania Bența

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 4
    ESOPs - An Overview ... “Its estimated that there are around 3.5 million employee shareholders representing ‘approximately seven per cent ofthe UK workforce.” “There are hwo types of ESOP in use in the UK; statutory ESOPs ond Strategies Ltd which compares the performance of companies with significant employee share ownership against the FTSE All Share Index shows the employee ownership index having risen 51 per cent faster than the FTSE index over the last five years. US giant Wal-Mart has demonstrated the rewards Solicitor, Head of Legal Services Boilhache Labesse Trustees Limited because of their greater flexibility. wereby placing the trustees outside the scope of the Financial Services Act and also relieving them from any liability to UK capital gains tax on chargeable gains. Unlike statutory ESOPs, the contributions made by a company to a common law EBT do not have automatic deductibility for corporation tax purposes; therefore in order to secure the relevant deductions care has 10 be taken to ensure that contributions are structured to be recurring revenue payments rather than capital payments, by Farah Ballands ‘common law ESOPs and, in each instance a trust which can accrue (0 staft participating in their (the Employee Benefit Trust company’s share scheme | ("EBT") atthe centre ofthe of schemes. "The UK en omien goverment is keen 10 fancdie the borcfrofa encourage this corporate : E tnd employee enthusiasm company’s employees. for share. ownership and various tax incentives are available to this end. Employee share ownership plans ore clearly a contributory factor o the economic growth of listed companies and are likely fo become a ‘general feature of smaller companies also The system of share distribution and the mechanisms for achieving itis examined (as shown in the diagram overleaf); ‘The diagram overleaf illustrates the structure of a simple ESOP. company is normally prohibited under s151 of Companies Act 1991 from providing financial assistance *...3151 does not for the purpose of the aquisition ofits prohibit “the provision by ‘own shares. However, 151 does not ‘@ company in good faith prohibit “the provision by a company in in the interests of the ee ‘good faith in the interests of the company ‘company of financial of financial assistance for the purposes of ‘employees’ share schemes”. The directors of a company must therefore be satisfied ‘and be in a position to demonstrate thatthe establishment of the ESOP arrangement is indeed in the interests of the company. assistance for the purposes of employees’ share schemes’ ‘The trustees of a statutory ESOP's EBT must be resident in the UK and there are various statutory requirements which must be adhered to in relation to the make up of the board of trustees. The same requirements do not apply to the trustees of common law ESOP’s employee benefit trusts and there has been a tendency towards the use of common law ESOPs TRUSTS & TRUSTEES * November 1999 Benefit Trust “There are three main (Market Place) ‘Shares Inland Revenue approved schemes; save-as-you-earn cash schemes, profit sharing schemes and discretionary 4 schemes.” Shaves Company Share Company cash sully par of Scheme ‘company's profits) _(Distibution Mechanism) | benefit from membership of unapproved “Many more, particular schemes which are not subject to the same oe fesictonss apyoved shee from membership of As illustrated in the above diggram thé) tnapproved schemes which are not subject fo the some restrictions os cpproved schemes.” schemes as-you-earn share option (GAYES) contributing between £5 and £250 per month over three or five years. ‘The exercise price of options granted to them may be discounted by up to 20 per cent of the market price at the date of ‘ranting the option, Profit sharing schemes are arrangements through which employees receive shares iS On ee a conditions. There are currently around 1 vac shrines oes ews Inland Revenve approved ———naximum of 10% of their annual salary. and unapproved share The schemes often involve contributions schemes.” by the employee, for example, on a buy ‘one share get one free bass. Discretionary schemes under which gains (on share options are outside the scope of ‘UK capital gains tax, where the options are exercised after three years, now involve around 300,000 employees. These company share option plans are restricted to shares of a value of under £30,000 per employee, ‘Many more, particularly senior, employees TRUSTS & TRUSTEES * November 1999 | Employee Participating Employees ‘The EBT can use funds received in payment for these shares to repay the loan it has with the company or with any extemal financier. Consideration has tobe given atthe time of establishment of the ESOP in order to ensure thatthe structure put in place best suits the requirements of the company. For ‘example, the share scheme arrangements Which would suit a high-technology start- up company will be very different from those which would suit an established ‘multi-national corporation. Nevertheless, ‘employee incentives or motivation and the anticipated enhancement tothe productivity and resultant profitability of @ ‘company will usually be a major driving force for the establishment of ESOP surangements for both small and large companies. Quoted companies often form ESOPS in order to warehouse shares for their Inland Revenue approved and unapproved share schemes. Limits imposed in elation to the dilution of a company’s share capital by the issue of new shares to employee share schemes may result in a company having — 39 “The establishment of an ESOP can offer a solution by enabling a vendor to schedule his departure from a business by the

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