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Page 1 |Page 2 | Page 3 | Page 4 Corporate, John Dix writes: Choosing the right type of share option scheme is critical in attracting the right employees. Significant tax savings can also be made for the company and the option holders if the appropriate scheme is in place. Time taken to adopt the right scheme for the company at the outset will be well rewarded when option holders eventually exercise their options and sell the underlying shares. Companies must also consider the option price they set at the time of granting options. It is tempting for companies to promise share options to potential employees at as low a price as possible. However, the potential tax consequences for the company and the employee of setting an option price below the current market value need to be borne in mind at the grant stage. It is beneficial for employees if the company grants options before it has acquired significant external funding so that the market value of the shares is as low as possible. Being too loose with the equity. There can be a tendency in the early stages of a new business to be over-generous with equity, or to offer it in return for services in an attempt to ease cash flow difficulties. While this may seem a good short term solution, in the longer term, the value of the equity given may be many times that of the original service provided and the founders may also find they have given up a significant degree of their control in the company. There are attendant administrative difficulties for young companies in having minority shareholders whose relationship with the company may, over time, become distant. |
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