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Many private companies are surprised that they can offer employees shares without going through an IPO. This guide is the first step in transitioning to a powerful employee ownership structure.
Why have we made this valuable guide free? Our team answers thousands of enquiries about Employee Share Schemes and exit planning every year, so we created a guidebook to help founder-owners look strategically at operations and business goals before determining whether such a plan is viable for the business.
What’s included in your free Employee Share Scheme (ESS) guide:
This guide is vital reading for any business owner exploring their exit options — or looking to harness the team’s talent with a foolproof remuneration strategy.
For a limited time we’re also offering a FREE 30-minute in-person or online consultation with an Accredited Advisor when you’re ready to get specific about your plans. Learn about our proven process to ensure your employee share scheme won’t become a headache for the business owner or its employees.
Low cost, high reward
An ESS offers tangible financial incentives with minimal outlay. Our experience and proven systems take the admin headache out of setting up all the legal and financial matters.
Grow sustainability
An ESS helps develop an “Ownership Mindset” culture with engaged employees so that they are invested in the business’ success and start to think and act like business owners.
Keep employees engaged
An ESS creates a win-win situation. Employees benefit by owning a direct stake in the business while the employer benefits from improved employee performance.
Incentivise innovation
Employee Share Schemes are a transparent and easy to implement mechanism that provides clear rules and guidelines to help with employee incentives and business succession.
Tax benefits
Set up correctly with the guidance of an Accredited Advisor, if the scheme meets certain conditions the taxing point is deferred until a later time.
CASE STUDY
With three-year tenure eligibility for the ESS program, Office Solutions IT employees see their loyalty rewarded by being to own a part of where they work. Hear from participants about how it’s shifted culture to foster collaboration and the ownership mindset.
Does being a member of an employee share scheme affect the terms of my employment?
NO. The share plan rules and qualifying conditions etc., relate only to the employee share scheme plan and does not have any effect on the laws which govern your employment including any enterprise bargaining agreement, award or another arrangement.
Am I now a director of the company or entitled to a seat on the board?
The employee share scheme does not include any right to become a director of the company and in fact, most employees do not want to become directors as this may well make them liable for other areas. Typically, when a share plan becomes a majority owner in the company, an employee may be elected to join the board of directors. This, however, is a matter for agreement between the employees and the current directors/founders of the company.
What is my risk? What if the company owes money?
Employees who are members of an employee share scheme are protected from any of the liabilities of the employer company and would not be liable for any debts or monies owed – nor are they required to contribute to any losses incurred by the company.
What happens if I leave the company?
Except in very specific and unusual circumstances, leaving employment would remove employee share scheme entitlements meaning you no longer qualify for the shares or options as you are no longer an employee. In many cases disqualifying events are also accompanied by disqualifying discount and so the value of your shares or options may be reduced, especially if you ‘leave early’.
What happens if the company is sold?
In the event that the company is sold externally there are two possibilities:
i. Members of the employee share plan are ‘forced’ to sell at the same time as the founders and would, therefore, be paid out the value of their shares at the time of the sale.
ii. The buyer decides to keep the employee share plan in place and continues to make contributions etc. in the same way that the original owners did.
What information will I receive on the performance of the company?
Employee share scheme members will always receive an annual statement which shows the number of units they hold and the underlying value of the shares in the company. The plan administrators will need to complete an annual valuation of the business as part of this process and that will always include a review of financial statements. Most employers provide a summarised version of this information to ESOP members.
Can I own the shares in a family trust or my self-managed super fund?
The PPT allows you to own shares through an ‘associate’. This could be a family trust (and this is probably a good idea for asset protection) and has some tax benefits as well. We would not normally recommend that employees use an SMSF as the rules around investments are quite strict and a breach of the SIS Act has quite serious consequences.
If the share plan earns dividends from my employer, do these come to me and if so, do I pay tax on them?
YES. In all of the various structures, the employee share plan would normally act as a ‘flow-through’ device and in the case of the truss structure that is commonly used, any given or distributions we see need to be passed through to the individual employees. At that point, they would be taxed as part of the employees’ individual income at marginal tax rates and in many cases dividends would include franking credits and these also are through to the employee.
