Our client is a start-up company developing a new technology. The company is expecting to grow its range of products and seek an external sale in the next three to five years. The company has a key development team who are critical to retain for the company to deliver on its objectives. The company is currently owned 100% by its founder but he recognises the value of his team.
How we helped our client
EQ’s Employer Solutions team met with the founder to discuss the plan for the company and its growth over the next few years. The founder was quick to credit his team with a lot of the new ideas the company was producing and he wished to create a structure whereby that team would benefit in the event of hitting performance targets or in the event of a sale.
We discussed a series of share option arrangements and ended up implementing an EMI (Enterprise Management Incentive) scheme. The effect of this was to create options (at very low, start-up values) which were capable of being exercised by the team, most likely immediately before a disposal of the business. EQ liaised with the company solicitors and created the scheme rules, in line with HMRC guidelines, and agreed valuations for the options granted.
The outcome of the advice was to implement a fully functioning EMI scheme. Three and a half years later, the company received an offer from a third party and decided to sell. The team exercised their options prior to that sale and secured a highly tax-efficient exit for all parties as the team all met the Entrepreneurs’ Relief criteria with their capital gain being taxed at 10%.
For more information or to discuss further, please contact the Employer Solutions Taxperts.