In the early days of running a business, you will be filling in many forms and making some decisions you might not be ready to make yet.
When you incorporate your business, you will have the option to give shares, and most of the time, since you are a solopreneur, you will be the only name on the shares.
However, companies are becoming more common to offer options as part of a joining package. The reason that options are becoming more common is that big companies believe that the shares will help the new candidate become quickly aligned in the company’s interests.
Once you are officially a shareholder, you will want the company to perform as well as possible. As workers, you will become more dedicated, productive, and active in the company’s growth.
You can enjoy the perks of shareholding when you purchase the options and may have voting rights and dividends.
Options: Share options give you the option to buy the shares; you don’t have to buy them if you don’t want to. The price set when the option was offered is called an exercise price.
What are the types of share option schemes?
There are many types of share option agreements and schemes that are available. If you are a business considering having options for your new staff or expanding, it is good to research the available options.
SAYE, a save as you earn, is available to companies that are listened to and not under the control of another company.
CSOPs are for companies of any size so long as they aren’t carrying out any excluded activities.
EMIs are for companies that aren’t carrying our excluded activities and who have less than 250 employees and less than 30 million in gross assets.
Furthermore, employers can establish unapproved share option plans for their employees, but these will not give any tax benefits to them. Investors who are not personnel of the firm can also be granted stock options.
How can I set up a share option for my small business?
The first thing you will need to do is have the approval of all the other shareholders in your company (which is easier if it is you). Keep in mind that when you issue more options, the current interest in the company will be diluted. If you have a number of shareholders, then you should check agreements for the pre-emption rights. All shareholders will need to approve the scheme and its terms.
Any agreement should cover the following things:
- If the shares are transferable
- If the employee leaves the role – do they keep the options?
- How long is the exercise period?
- What is the exercise price?
The Taxes on Exercising Options
Unless the options were granted under a tax-advantaged arrangement, PAYE and perhaps National Insurance (both employee and employer) are due when an employee exercises options if the exercise price is less than the current market value.
This is just one of the considerations that new businesses owners need to make. Share options can be a great way to entice workers. Other areas include how you will grow: 3 Areas You Need To Invest in for Business Growth – The Successful Thinker.
