Rewarding and retaining key employees is currently a vital business decision given the competitive business market. Other business owners want to pass some value onto family members. The challenge is to do this tax efficiently. Growth/flowering shares are one of several ways to do this.
In general, shares cannot be transferred/issued to family members/employees for no consideration without giving rise to a significant tax charge. The desire to do so is usually triggered by the need;
- to retain key employees, and,
- for succession planning
allied with the prospect of substantial capital appreciation in the future. Therefore, the issuing of growth shares should be considered to avoid this tax issue.
Growth shares can be introduced if the owners of the business are happy to cap the company at its current market value. After this date the increase in some or all of the value of the business(depending on the circumstances) will accrue in the hands of the holders of the growth shares.
Because it is the future increase in value of the shares, the holders are not liable for income tax/CAT on the issue of the shares. Growth shares act as an incentive for the holders to participate in driving the business on as they ultimately stand to benefit when the value of the company increases. If the owners hold some growth shares themselves, the owners also participate in future value.
Professional advice should be obtained before deciding upon the issuing of growth shares in a company as it is a very technical area. If you have any questions in relation to growth shares, or if you would like to discuss this topic further, please contact a member of the Mazars’ employment tax team below:
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091 570 137
Senior Tax Manager
091 570 162
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In providing tailored solutions to the individual needs of our clients, Mazars tax examine and offer a comprehensive range of tax services to national and international clients with a particular emphasis on helping them to structure their businesses and financial affairs tax efficiently.