Book Now

Is Your Start-Up Considering An Employee Share Scheme?

Employee share schemes (ESS) are a great idea to better align employees’ interests and the financial interest and performance of a business.  These schemes allow eligible employees to purchase or acquire shares or employee share options (where employees are given the option to purchase shares at a later date or upon achieving certain key performance indicators). 

 

Subject to meeting certain conditions, start-ups are eligible to offer employees shares at a discount of up to 15% without having the employee liable to any upfront tax.  Under the start-up ESS rules employees can only acquire up to 10% of the equity interest in the company and the ESS must be offered to 75% of the employees.  For companies to benefit from the tax exemptions offered to start-ups certain requirements must be met:

 

  • The turnover of the company must not exceed $50 million;
  • The company is not listed on the stock exchange;
  • The company is an Australian for tax purposes;
  • The company has been incorporated for less than 10 years;
  • Shares acquired under the ESS must be ordinary voting shares;
  • Securities acquired under the ESS must be held for no less than 3 years;
  • To the extent options are involved, the price must be based on the fair market value of the share on the date the company grants the option.

 

Benefits of Employee Share Schemes

1. Attracting top quality staff

Start-ups could utilise ESS to attract good employees with a lower salary when cash flow is not so readily available. High quality more senior employees may expect equity incentives as part of their package. 

2. Retaining high performers

Equally as important as the ability to attract top quality staff is the ability to retain them. ESS is a great incentive as employees would think twice before leaving if they stood to walk away from something that is valuable. This is a great way of protecting a company from the risk of having strong performers poached by other firms.

3. Employees having a stake in the performance of the business

This could help change the way people think and behave.  A person who owns a meaningful stake within a business is likely to act differently to someone who does not.  Decisions made by employees with a stake in the company will align more with the objectives and goals set of the founding shareholders. 

4. Potential tax efficiencies

It is important to ensure that specialised legal and tax advice is sought at an early stage to ensure employees benefit from available tax concessions (see above).  Further, there are complex disclosure and licensing laws which may apply and legal advice should be sought in relation to these laws and potential exemptions.  Offers made to employees must be in writing and should contain all prescribed information. 

Contact Allied Legal

A specialised legal adviser can guide you through the complex rules, formalities and options available when setting up ESS. Allied Legal’s start-up lawyers in Melbourne regularly assist entrepreneurs and start-ups and take great pride in seeing them flourish.  We provide free 30-minute initial consultations to help understand your needs.  Please contact us when you are ready to seek specialist advice: http://alliedlegal.com.au/contact/.

 



Related Articles

VIEW ALL

Coping with the Coronavirus: Quarantine, Contracts & Commerce

Amid concerns of toilet paper supply, best hygiene practices and discerning when to self-quarantine, we at Allied Legal wanted to talk to you about the legal and commercial implications of coronavirus.


Post-Employment Restraints

Senior or executive staff resigning and taking valuable customer and confidential information with them could result in extensive damage to a business. Post-employment restraints or restraints of trade clauses, that come into effect after employment ends, can protect the legitimate interest of the employer. 


USING EMAIL FOR MARKETING AND ADVERTISING

One of the most effective marketing channels for start-ups today is email.  Using email marketing tools make it simple quick and easy for marketers to create a campaign, upload a list of contacts and send the email out.  However, it is vital to have a basic understanding of the laws around such marketing and which laws you need to comply with, such as the Spam Act 2003(Cth), before setting up an email marketing campaign. 

Subscribe

Subscribe to our newsletter to receive exclusive offers and the latest news on our products and services.

First Name
Last Name
Email Address

Need some help?

If you need assistance, why not book a call with us today? Or fill out
the form below to book in for a free confidential consultation.