Make sure you keep your share structure tight

That's all fine in theory (as an alternative or indeed an adjunct to rewarding these individuals by more traditional methods like a pay rise or bonus) but may not work so well in practice if a company has a complex share structure or has multiple minority shareholders. This is because: -

1. if not documented properly it can cause problems with control of the company and also potentially jeopardise a trade sale if the minority shareholders can’t be ‘dragged’ (obliged to sell when the majority shareholder wants to sell);
2. it can result in a whole host of people expecting (probably wrongly) to have a say in the running of the company, which can be an unwelcome distraction requiring to be properly managed; and
3. if not implemented properly, it may cause unintended and expensive tax consequences for the company and/or its shareholders.

If you think having multiple shareholders is unavoidable: -

1. file the correct paperwork with Companies House and write up the company’s statutory books;
2. amend the company’s articles appropriately (take legal advice) so that you don’t jeopardise control or end up having a trade sale blocked by a minority shareholder; and
3. consider granting share options instead (typically only exercisable on an exit event occurring re the company). These share options can be subject to performance targets (or vest in accordance with length of service) so that if the option-holder doesn’t perform (or leaves), the options simply lapse, and the company keeps the shares. There are two types of share options - HMRC approved ones (e.g. EMI share options) and unapproved ones. It will always be preferable to grant HMRC approved options where possible given their inherent tax efficiency, but advice always needs to be taken on this in the individual case.

If you’d like to discuss how we can help to keep your company structure clean and workable please do get in touch.