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Employee share scheme adminsitration - Coggle Diagram
Employee share scheme adminsitration
The rules set out the key features of the options and typically include
Details of when the company can issue options, usually within a set period of the announcement or publication of full year accounts
Setting out which employees can be grated options such as length of service or minimum employee grade
Details of how many options will be granted and the mechanism for determining the exercise price
Details of when and how the options can be exercised. Many option schemes will require the options to be held for a minimum period before being able to be exercised
Option holder leaving the employment of the company will usually be split between good or bad leaver. The criteria for determining which category a leaver belongs to will be set out in the rules. A bad leaver would lose any entitlement to exercise any remaining options whereas a good leaver will retain that right but it might be time limited
Options are usually only able to be exercised by the option holder and cannot be transferred except in circumstances where the option holder dies where there may be a limited right to exercise by the executors/administrator
Details of what happens if there is a change in the control of the company such as a takeover. Often the option holders will be able to exercise immediately
Shareholder approval for the establishment or amendment of an employee share scheme may be required depending on the status of the company and its Articles or other agreements
The directors have general authority to establish an employees share scheme unless there is a provision in its Articles or some other agreement such as a shareholders agreement that prohibits the creation of an employee share scheme with shareholder consent
The Model Articles do not provide that shareholder approval is required to establish or vary an employees share scheme
The Act provides protection for existing SH for dilution by imposing restrictions on the directors authority to issue shares and providing for pre-emption rights. However there are exclusions for employees share schemes
Directors do not require shareholder authority to issue shares or options under an employees share scheme
Pre-emption rights do not apply to shares which are to be issued under an employees share scheme
A listed company must obtain approval for it or a major subsidiary to establish an employee share scheme which includes the issue or transfer or treasury shares or to amend such a scheme
Once the scheme has been established it is important that ongoing administration is undertaken, this includes the following steps which should be followed to grant options, maintain the option holders details and file annual returns with HMRC etc
In advance of the window for granting new share options confirm the details of any employees that meet the eligibility criteria
Once the new window opens authority from the directors to offer new options and send the necessary scheme documentation to eligible employees offering them the opportunity to join the scheme
Once the window closes confirm the details of those accepting employees and issue the necessary confirmations and details of the options issued
For an EMI scheme, notify HMRC with 92 days of the date of grant of qualifying options
In the lead up to the vesting of any options ensure participants are aware of the ability to exercise their options
Process any options exercised by participants and obtain the necessary director or committee to issue new shares or transfer shares from treasury to satisfy the exercises
Ensure that the relevant statutory registers are update following the allotment and transfer of shares. Ensure the relevant returns are sent to Companies House following an allotment of shares
Details of participants should be maintained, such as changes or address or name, good and bad leavers, additional awards etc
Each scheme will require an annual return to be made to HMRC with details of any awards, vestings or lapses of options since the previous return
The scheme rules should be reviewed periodically to ensure they remain fit for purpose. Any amendments must be duly authorised by either the board/remuneration committee or the company's shareholders.
Some scheme rules expire after a certain number of years so the periodic review should take into account the need to gain approval for renewed scheme rules