What Are Growth Shares?

With spring having sprung and the start of new growth showing all over the countryside, you might be thinking to the future and the growth of your company.

One option often discussed as a way of incentivising employees to help grow the value of your company, particularly when a sale is being considered in the future, even if this is 10 years in the future, is issuing Growth Shares.

So, what are Growth Shares?

Growth Shares are a special class of shares that allow holders to benefit from any growth in value of the company, from the time that the shares are awarded. Unlike ordinary shares, Growth Shares are more attractive due to their affordability, there being no dilution of the existing shareholding, and there can be significant tax advantages.

Growth shares are only entitled to a share of sale proceeds until an amount (usually equal to the value of the company at the time the Growth Shares were issued) is distributed to the holders of ordinary shares.

Typically Growth Shares have no or limited rights to dividends and voting, however for tax purposes, enhanced voting rights can be agreed when issuing Growth Shares.

Setting up a Growth Share Plan

Growth Share Plans when arranged correctly and in a tax efficient manner can allow the value of your company to grow, benefitting everyone involved. Setting up a Growth Share Plan involves:

• A company valuation – as HMRC does not agree valuations for Growth Shares, any level of uncertainty can lead to unwanted tax consequences. A valuation is used to set the threshold above which Growth Shares are entitled to a share of the value of the company.
• Taking tax advice to ensure the scheme works for everyone involved.
• Instructing solicitors to create a suite of documents to put in place new articles of association for the company and to allot the Growth Shares.
• Assessing prospects of growth within a reasonable period – as Growth Shares do not expire, growth in the far future can also be advantageous, nonetheless it is helpful to consider realistic prospects of future growth when making the initial investment.

To find out more about implementing a Growth Share Plan for your company, contact BHW’s corporate and commercial team on 0116 289 7000 or email info@bhwsolicitors.com.