Hurdle Shares

Service overview: Employee incentives solicitors – Hurdle shares

  • Hurdle shares are a special share class which allow employees to benefit only from growth in the value of the company above a ‘hurdle’ exceeding the current value of the business. They’re usually part of a growth share scheme to incentivise employees.
  • These shares enable employees to own an equity share in the company and are typically purchased for a low initial value and, as such, attract little or no employment tax payment at the time of acquisition.
  • Like other non-tax advantaged schemes, hurdle shares provide considerable flexibility to employers as not only can they set specific conditions on their use (such as forfeiture if the employee leaves the business), they provide a way of rewarding hard work and loyalty without offering increasing salaries, thereby helping to control costs.
  • When considering share incentive schemes, there are several routes available, including HMRC tax-advantaged schemes and non-tax advantaged arrangements such as share options granted outside HMRC tax relieved arrangements. Our team of employee incentives solicitors will explain the implications, advantages, and risks of each, including EMI options, growth shares, flowering shares and shadow/phantom shares. We can also recommend the most suitable alternatives based on your location, business type, stage of growth, and objectives.

What we do: Employee incentives – Hurdle shares legal advice

Hurdle shares are typically offered to incentivise key employees in return for their loyalty and hard work in assisting the growth of a business. These non-tax advantaged share acquisition arrangements provide considerable flexibility and potential tax advantages for employee and employer. Hurdle shares enable employees to become shareholders at little cost, and allow them to realise the value in the shares once the growth threshold has been achieved.

Our employee incentives solicitors can advise on a range of share option and share acquisition schemes. Typically, we can help you with:

  • Advising on the most suitable plan for your commercial goals
  • Valuing the shares
  • Advising on a future hurdle amount
  • How you can combine hurdle shares with other types of share incentive arrangements

In addition to advising on the feasibility of introducing hurdle share arrangements, we can provide guidance in relation to other share schemes that may be available and which might be the most suitable for your business, including:

About hurdle share schemes

Under hurdle share scheme arrangements employees benefit from the uplift in value once the set growth has been achieved, for example, if a business is currently valued at £20million, a class of “hurdle share” could be created which permits shareholders to benefit if the business grows in value above £25million . For this reason, hurdle shares are popular with companies with ambitious growth targets.

As a non-tax advantaged share scheme, hurdle shares offer considerable flexibility and control in a number of ways:

  • Existing shareholder protection – as the employer is able to set the ‘hurdle’ (or threshold) at which the share benefit can be realised, they are afforded greater control over growth targets and shareholding. As such, current employees will not have their stake diluted immediately – thereby protecting key staff and founding members.
  • Employer financial protection – As the employee is buying their shares at the market rate (typically low given the early stage of the company and the existence of the hurdle), they are incentivised to work hard and remain faithful to the business. As a result, there is less need to incentivise through salary payments, only once the hurdle target has been met.
  • Additional conditions – Employers can make hurdle shares subject to specific conditions, such as forfeiture if the employee leaves the business.

Due to the various types of share incentives available, including HMRC tax advantaged and non-tax advantaged arrangements, it is important to seek expert advice to ensure that your business is using the most appropriate model which is as tax efficient as possible while achieving its intended aim.

HMRC tax implications

  • On receipt of the hurdle shares, income tax is typically not payable by the employee if the full market value is being paid.
  • If the hurdle share arrangement is properly structured, market value is assessed taking into account the early stage of the company, the small minority stake the individual will take, non-transferability of the shares and the existence of the hurdle.
  • On disposal, Capital Gains Tax (CGT) is typically payable – normally at 20%. In addition, hurdle shareholders may benefit from the Capital Gains Tax annual allowance and other reliefs and exemptions.

If you need an introduction to share schemes and which might be best for your business, don’t forget to read our advice What are employee share schemes and how do they work?

Who we help: High-growth businesses, start-ups, SMEs and large businesses

We help start-ups, SMEs and high-growth businesses, as well as investors and entrepreneurs. Hurdle shares are most suitable for companies with ambitious growth plans and an exit strategy. Start-ups and high-growth companies are a major focus for our firm so we are highly experienced in guiding them from formation through to successful exit, and we appreciate how incentivising employees along the way can aid this ultimate goal.

Why choose our employee incentives solicitors? Our experience

We’re a modern law firm with a difference. Our innovative remote operating model means that you can access expert City-grade legal advice from partner-level solicitors at a fraction of the cost of traditional law firms. Our solicitors have all been recruited from top 100 UK law firms or large international businesses. Find out more about our corporate lawyers here:

Pricing plans

Our three transparent pricing packages are designed to give you the widest possible access to high-quality legal advice, whatever the size and nature of your business:

City

Straightforward access to senior solicitors at a competitive rate.

An affordable solution for businesses needing one-off legal support. Receive ‘City’ partner-level expertise at a fraction of ‘City’ prices.

Enterprise

Have legal peace of mind for £189 per month with additional support from £99 per hour.

A monthly subscription legal support package specifically designed for start-ups and smaller businesses.

On-Demand

For businesses requiring 60+ hours of support a year, with prices equivalent to £99 per hour.

Fully account managed quarterly subscription service for businesses with more complex legal needs.

What our clients say

We pride ourselves on delivering an excellent service for clients, but don’t just take our word for it.

What next?

Please leave us your details and we’ll contact you to discuss your situation and legal requirements. There’s no charge for your initial consultation, and no obligation to instruct us. We aim to respond to all messages received within 24 hours.

  • Your data will only be used by Harper James Solicitors. We will never sell your data and promise to keep it secure. You can find further information in our privacy policy.

  • This field is for validation purposes and should be left unchanged.
  • This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

A national law firm

We mainly work remotely, so we can work with you wherever you are. But we can arrange face-to-face meeting at our offices or a location of your choosing.

Our commercial lawyers are based in or close to major cities across the UK, providing expert legal advice to clients both locally and nationally.

Floor 2, Cavendish House, 39-41 Waterloo Street, Birmingham, B2 5PP
Stirling House, Cambridge Innovation Park, Denny End Road, Waterbeach, Cambridge, CB25 9QE
10 Fitzroy Square, London, W1T 5HP
13th Floor, Piccadilly Plaza, Manchester, M1 4BT
Harwell Innovation Centre, 173 Curie Avenue, Harwell, Oxfordshire, OX11 0QG
2-5 Velocity Tower, 1 St Mary’s Square, Sheffield, S1 4LP

Our other locations

Immeuble Danica B, 21, avenue Georges Pompidou, Lyon Cedex 03, Lyon, 69486