Employee Share Schemes (ESS) have long been a utilised as a valuable tool to drive and motivate key personnel to invest themselves in the future of the company.
ESS are also particularly appealing to boot strapped start ups who may not have the capital or cash flow to attract and retain employees.
From an employee perspective, Share Schemes offer an opportunity to carve out a better package that includes a potential share in profits for future wealth creation and take advantage of some attractive tax concessions.
Existing requirements for share schemes however trigger disclosure obligations for employers. These obligations are can be onerous, particularly for smaller start up companies who do not have the resources to produce appropriate Disclosure documents.
Under the current regime, these documents are also made publicly available resulting in fledging companies having to release potentially sensitive commercial and financial information.
The recent Innovation Report identified these obligations as one of the key causes for low utilisation rates of ESS by start-ups.
In response, the government has proposed several amendments to the disclosure obligations which seeks to limit the disclosure requirement and allow an exemptions to public release of commercially sensitive documents for start-ups.
These amendments will compliment and support the recent introduction of generous tax concessions for employees taking advantage of an ESS. These concessions include deferring tax obligations on share options until a true benefit is realised. Eligible start-ups will also be able to offer shares to employees at a discount and have that discount exempt from tax.
A company will be considered an eligible start-up for the purposes of the Employee Share Scheme if it (or its subsidiaries or holding company) was not listed on the stock exchange, if it has been incorporated for less than ten years and its turnover does not exceed $50 million.
While the tax provisions are already in place, the reduced disclosure obligations are expected to commence from 1 July 2016. Watch this space!
About the author:
Sarah Bartholomeusz is the founder and CEO of You Legal, a new category of law firm that provides leaders in growing companies with the confidence they need to make bold decisions in their businesses. In 2015 You Legal was the winner of the Telstra Business Women’s Award in the Start-Up category for South Australia.