The last 15 years have certainly taught us how futile predicting the future can be. That does not mean that as a business owner you should not plan, but you need to make sure your plan can flex.
Whether the future owners of your business are family members, internal management, third parties or a combination of the three, there are steps that you can take to keep your options open.
Share options granted under the Enterprise Management Incentive (EMI) scheme and the Company Share Option Plan (CSOP) can provide an incredibly flexible incentive tool for company owners.
The option could provide the employee with the right to acquire shares in the company on the earlier of the eighth anniversary of granting the option or in the event of a sale, listing or change of control.
This could result in employees who are motivated to:
- Maximise the value of the company to benefit from third-party or public listing consideration.
- Engage in the decision making for the company’s future as they could be part of a management buy-out or be shareholders alongside the next generation of family members, helping smooth the transition.
- Influence the wider workforce and gain experience in people management.
The share option signifies to the employee that you value their contribution to date and your intention to bring them in as shareholders, but it also provides time:
- Without a wider shareholder base and the complexities greater numbers can bring.
- For the next generation and current owners to consider if continued family ownership is the preferred path.
- To consider third-party offers as they arise.
- To develop the business plan as economic events unfold.
- To build up personal value from the profits generated, ensuring tax-efficient tools such as pensions are maximised for retirement.
- To avoid the cost of buying shareholders out; if the employee leaves prior to the exercise date, the option can lapse with their resignation if the appropriate clauses are drafted.
There are of course individuals who view succession like our former Queen, but outlining a flexible plan for life’s key eventualities is eminently sensible!
If you would like to discuss the objectives for your company and how share schemes might be used to facilitate them, please do get in touch.