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All About Share Options Schemes

By: Jack Claridge - Updated: 23 Aug 2012 | comments*Discuss
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You may have seen on television or read in newspapers about the sale of shares to employees of companies or the general public as a means of raising much needed cash. This is referred to as providing 'share options.

When a company is incorporated the directors of the company will be asked to give details of how many shares the company has and who owns them. In the case of small businesses - limited companies for example - there may only be two shares, one given to each director. This gives each of them an equal stake in the business and prevents one or other from making hasty decisions about the running of the business without consulting the other.

As companies become larger and more financially viable they can pursue the option of providing additional shares. These shares are - if the company is not floated on the stock market - offered as incentives or investment opportunities to the staff, family of staff members or the general public should the company wish to do so.

Share Option Schemes

Her Majesty's Revenue and Customs actively endorse four such share option schemes which are :

  • Save As You Earn (SAYE)
  • Enterprise Management Incentives (EMI)
  • Approved Profit Sharing (APS)
  • Company Share Option Plan (CSOP)

Save As You Earn (SAYE)

This scheme allows employees to save money on a monthly basis over a period of three to five years. The amount they can save varies but is usually set but HMRC at between five to two hundred and fifty pounds. At the end of the set period a bonus (tax-free) is paid back to the employee and the employee is exempt from paying more tax on rising share prices; this allows for a larger return.

Enterprise Management Incentives (EMI)

If you are an employee who works at least twenty five hours a week then you are entitled to enter into the Enterprise Management Incentives (EMI) scheme if your company is operating one. This allows members of staff to buy shares in the company up to a maximum of one hundred thousand pounds. Using a scheme like this that is approved by HMRC allows the employee to see a return on his or her investment at the time of sale up to a value of three million pounds.

Approved Profit Sharing (APS)

A company may set up a trust which is allowed to buy shares in the company and then allocate these shares to employees. These shares are then paid for by tax-deductible payments which are made to the trust but in order for payments to be tax free they must be made for a period of three years as opposed to the standard two. After which time any employee may sell their shares back to the trust if they wish to do so.

Company Share Option Plan (CSOP)

This is a good way for employees to get hold of company shares in future years at today's prices. A company share option plan allows shares to be sold for example at today's price of £1 when they may be worth £3 at the time of sale. This allows employees to buy up to £30,000 worth of shares at a reduced price thus ensuring a profit and also reductions in tax.

For more information on these schemes and how they can work for your company you should contact your local HMRC office and ask for more details. You should also speak to your company accountant who will be able to provide you with details of how to handle share options and the legalities involved.

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