Hurdle Shares

Are you a fast-growing company that wants to preserve cash and to reward and incentivise your valuable talent? Hurdle share plans could be the answer.

With the benefit of our expert advice, you can put a hurdle share plan in place whereby you issue shares to key employees with the condition that they only benefit in an increase in value beyond a set amount or ‘hurdle’. That way, they remain incentivised to help you achieve your growth ambitions. Our expert corporate solicitors can explain to you how hurdle shares work, and help you design a scheme that’s right for you.

Keep top talent loyal and meet your growth targets with a hurdle share plan offering tangible incentives

We’re experts in organising employee incentive arrangements for ambitious founders and business owners, and our team of corporate lawyers will support you with:

  • Recommending which employee incentive plans are best for your situation, based on your sector, type of business, stage of growth, and goals.
  • Designing and implementing your hurdle share plan in terms of your employees’ right to vote and receive dividends and making sure the scheme has robust leaver provisions.
  • Helping you set and define the hurdle amount, value your company, and decide the price your employees will pay for the hurdle shares.
  • Amending your articles of association to allow for new classes of shares.
  • Amending any shareholders’ agreements and making sure your existing shareholders understand how the scheme works, and making sure that neither you nor your other stakeholders holdings are diluted.
  • Comparing and contrasting other types of share schemes, both HMRC tax-advantaged and non-tax advantaged arrangements, including EMI schemes,  growth shares, flowering shares and phantom shares.
  • Explaining to you any impacts under the SEIS or EIS schemes.
  • Entering into a section 431 election on your behalf.

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Use hurdle share plans to reach your end goal

Hurdle shares are normally issued by private limited companies that are growing very quickly and where the founders are planning an exit at some point in the future. They are used as an incentive to top employees to keep working hard to increase the company’s value. Employees pay market value for the shares and will only benefit if the company grows beyond a set amount, defined as a ‘hurdle’.

Working with you to understand what you need to achieve for your business, we will help you answer the following questions:

  • How will my hurdle share plan work in practice?
  • Do I need to worry that my own shares will be diluted?
  • How about my existing shareholders or investors? Will they be likely to object to the scheme, and how can I reassure them?
  • How will I value my company and decide how much the employees will pay?
  • Can I tie the hurdle to business goals or employee performance?
  • What happens when an employee leaves? Can they hold on to their shares if I don’t want them to?
  • Are there any tax advantages and if so, how do they work?
  • Can I set a hurdle share scheme up alongside another employee incentive arrangement?

What are the benefits of hurdle share schemes?

Research has shown that companies with employee incentive arrangements are more profitable and productive. Get a competitive advantage (and attract and reward your high-performing employees) by setting up a hurdle share plan that will incentivise.

While hurdle shares are tax-efficient, they are not ‘tax-advantaged’ so they don’t need advance clearance from HMRC, and you don’t have to do annual reporting, saving you time and money.

What’s more, schemes like EMI share options schemes require your company to meet certain criteria to be eligible for tax relief, and maintain these throughout the life of the scheme. Hurdle shares are more flexible.

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. Offering hurdle shares to employees is more cash-efficient than awarding bonuses since they pay for their shares. Keep hold of your cash to invest in your business, while still rewarding your talent.

When you offer hurdle shares, your employees will become immediate shareholders. It’s crucial that you take expert legal advice so that your own shares aren’t diluted. This is achieved by making sure that hurdle shareholders only benefit in an uplift in share price after the hurdle has been met. Because you set the hurdle, you have greater control over growth targets and shareholdings. As such, current stakeholders will not have their stake diluted immediately.

Hurdle shares enable employees to own an equity share in the company. They buy at a low initial value and, as such, attract little or no employment tax. If your employees will be paying full market for their shares, they’ll pay no tax. They’ll only pay capital gains tax on any increase in value, and this tends to be at lower rates than income tax.

Due to the various types of share incentives available, including HMRC tax advantaged and non-tax advantaged arrangements, it is important that you get 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.

Who we help: High-growth start-ups and scale ups

We support a wide range of ambitious UK-based start-ups and scale ups who have a view to exit and are therefore focussed on maximising company value prior to sale. Getting the right legal support early on will help you to organise the share plan that best aligns with your business goals and allows you to lean on experts when balancing talent retention and supporting key stakeholders in the business. Rely on our experienced specialists to give you the support necessary to set up a hurdle share plan that benefits all areas of your business, now, and in the future.

Why choose Harper James Solicitors?

Getting the right legal support when you set up a hurdle share scheme is essential as this can have an impact on your existing investors and shareholders. But as a growing start-up, you’ll undoubtedly require legal support in other pockets of your business too. At Harper James Solicitors we specialise in offering cost-effective legal subscription plans for start-ups and scaling businesses that are delivered by commercially astute and experienced solicitors. We’re fully aware that legal support may not always seem attainable for start-ups. That’s why we keep costs transparent. And our business legal services tailored to your specific commercial goals.

Plus, our corporate specialists have been recruited from top 100 UK law firms or from large international businesses and have advised clients both as external advisors and as in-house counsel. Learn more about the team 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.

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