KEEP programme to attract and keep key employees

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Purple said:
Shares in a private company won't earn a dividend. They will almost certainly be restricted in who they can sell the shares to. A minority shareholding in a private company is worth very little.
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So the KEEP scheme is not of much use then?
 
Purple said:
I don't think so, but I'm open to correction.
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You said that there are restrictions on sale of shares in private companies and that dividends are not paid. I'm sure how there could be restrictions on sale of shares, but taking your word for it, how is the KEEP program of any benefit? Obviously being taxed at CGT 33% instead of PAYE, PRSI, USC is clear - but if there are restrictions on who the shares can be sold to, then it somewhat diminishes the tax advantage. Btw, I've never heard of such a restriction in an open market economy, but perhaps I am not that knowledgeable about company law.
 
TheBigShort said:
You said that there are restrictions on sale of shares in private companies and that dividends are not paid. I'm sure how there could be restrictions on sale of shares, but taking your word for it, how is the KEEP program of any benefit? Obviously being taxed at CGT 33% instead of PAYE, PRSI, USC is clear - but if there are restrictions on who the shares can be sold to, then it somewhat diminishes the tax advantage. Btw, I've never heard of such a restriction in an open market economy, but perhaps I am not that knowledgeable about company law.
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I'm no expert in the matter but we can only sell shares back to the company. Otherwise someone could leave and sell shares to a direct competitor which could damage the business.
We also don't pay dividends or any income based on share ownership; if you don't work here you don't get an income.

In that circumstance I'm not sure what value a small ownership is actually worth.

If you are working for a start-up which is being positioned for sale then that's a different matter.
 
Purple said:
I'm no expert in the matter but we can only sell shares back to the company. Otherwise someone could leave and sell shares to a direct competitor which could damage the business.
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Seems like a poor deal. Think about it, publicly listed companies have no issue with who buys their shares as they are traded openly. They are also subject to competitors interests too.
If someone were to buy a stake in your company, it would surely be more advantageous to them to protect that interest rather than damage it.

Purple said:
We also don't pay dividends or any income based on share ownership; if you don't work here you don't get an income.
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Not paying dividends is quite common. The money is simply re-invested into the company. This should boost share price long-term if the company is managed well.
 
TheBigShort said:
If someone were to buy a stake in your company, it would surely be more advantageous to them to protect that interest rather than damage it.
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What if they were the owners of a competing company? They could have access to detailed accounts, customer details etc. It could give them a big commercial advantage and as long as they were not a director there would be no legal reason not to damage the company.
What if they were just interested in a short term return and wanted to bleed the company of its reserves, damaging the job security of the employees?
Small businesses don't have a legal team. They can't afford the cost of putting in that structure in place. They are often just about keeping their head above water. A disruptive shareholder could be disastrous.
 
Purple said:
What if they were the owners of a competing company? They could have access to detailed accounts, customer details etc. It could give them a big commercial advantage and as long as they were not a director there would be no legal reason not to damage the company.
What if they were just interested in a short term return and wanted to bleed the company of its reserves, damaging the job security of the employees?
Small businesses don't have a legal team. They can't afford the cost of putting in that structure in place. They are often just about keeping their head above water. A disruptive shareholder could be disastrous.
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As far as I understand if you are a private company with limited liability you are required to register with the CRO and submit an audited set of accounts to them each year. Anyone can obtain a copy of those accounts for about €25. That is all that the company would be legally obliged to provide to any shareholder too.
 
Isn't the intent to KEEP the employee in the small company. Allowing them to take the shares with them would be no incentive to stay.
 
losttheplot said:
Isn't the intent to KEEP the employee in the small company. Allowing them to take the shares with them would be no incentive to stay.
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It could be, but that sounds like some form of entrapment. Say as an employee, I agree with receiving payment of wages through this share-based incentivised scheme. For two years I receive shares to the value of €5,000, of which upon disposal I pay 33% CGT instead of PAYE, PRSI, USC.
After two years, I don't like the direction the firm is going and I want to sell my shares to maximise profit and take up another opportunity.
I think it would be ludicrous if the only pIace I could sell the shares was back to the company again.
 
[broken link removed] provides some information on KEEP.and compares KEEP with other share schemes.

“Share-based remuneration can play an important role in rewarding key employees at all stages of a business’s development and it can significantly reduce fixed labour costs and free up business cash-flow.

In summary, gains arising to a key employee on the exercise of qualifying share options under the KEEP incentive will be exempt from income tax, USC and employee PRSI contributions. This is the key advantage of KEEP: it means that if the company share price has increased in value between the time of grant and exercise of the qualifying share option the uplift in value is received tax-free by the key employee. Under current rules, the value of the gain is subject to income tax, USC and employee PRSI contributions, with a potential combined liability of 52%.

Under the KEEP incentive, the employee will only pay Capital Gains Tax at the current rate of 33% on the ultimate sale of the company shares.

The value of shares acquired by key employees under the KEEP incentive will also be exempt from employer PRSI contributions, in accordance with the current regime applying to share-based reward.”
 
Sophrosyne said:
[broken link removed] provides some information on KEEP.and compares KEEP with other share schemes.

“Share-based remuneration can play an important role in rewarding key employees at all stages of a business’s development and it can significantly reduce fixed labour costs and free up business cash-flow.

In summary, gains arising to a key employee on the exercise of qualifying share options under the KEEP incentive will be exempt from income tax, USC and employee PRSI contributions. This is the key advantage of KEEP: it means that if the company share price has increased in value between the time of grant and exercise of the qualifying share option the uplift in value is received tax-free by the key employee. Under current rules, the value of the gain is subject to income tax, USC and employee PRSI contributions, with a potential combined liability of 52%.

Under the KEEP incentive, the employee will only pay Capital Gains Tax at the current rate of 33% on the ultimate sale of the company shares.

The value of shares acquired by key employees under the KEEP incentive will also be exempt from employer PRSI contributions, in accordance with the current regime applying to share-based reward.”
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Thanks for that.
My suggestion is to roll out the scheme to ideally, all employees, or at least all employees of the qualifying companies.
 
BS, you seem to have very little understanding of how the world works.

A scheme is introduced to help companies retain key staff and you’re wondering why there’s no scheme to retain non-key staff.

Frankly, the Dunphyesque contrarian stuff has lost it lustre; it’s just boring at this stage.
 
Sophrosyne said:
[broken link removed] provides some information on KEEP.and compares KEEP with other share schemes.

“Share-based remuneration can play an important role in rewarding key employees at all stages of a business’s development and it can significantly reduce fixed labour costs and free up business cash-flow.

In summary, gains arising to a key employee on the exercise of qualifying share options under the KEEP incentive will be exempt from income tax, USC and employee PRSI contributions. This is the key advantage of KEEP: it means that if the company share price has increased in value between the time of grant and exercise of the qualifying share option the uplift in value is received tax-free by the key employee. Under current rules, the value of the gain is subject to income tax, USC and employee PRSI contributions, with a potential combined liability of 52%.

Under the KEEP incentive, the employee will only pay Capital Gains Tax at the current rate of 33% on the ultimate sale of the company shares.

The value of shares acquired by key employees under the KEEP incentive will also be exempt from employer PRSI contributions, in accordance with the current regime applying to share-based reward.”
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SME's aren't publicly traded companies. Who decides what the shares are worth?
 
Purple said:
SME's aren't publicly traded companies. Who decides what the shares are worth?
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Also taken from the link I provided in post #30 above:

"The relief is aimed at “key employees” in “qualifying companies” and the upcoming Finance Bill may provide definitions of these terms, together with an outline of other qualifying conditions necessary to qualify for the incentive. Below are some of the requirements that apply to similar schemes in the UK and Sweden:
  • Under the UK Enterprise Management Incentive (EMI), share options with a market value of up to £250,000 only may be granted tax-free to employees of trading companies which have less than 250 employees and gross assets not exceeding £30 million. Certain requirements on working time must also be met and the employee cannot have a material interest in the company, broadly a 30% shareholding.
  • Under the Swedish scheme, companies must be less than ten years old, have fewer than 50 employees and have revenue of fewer than 80 million kronor (€8.3 million).
Similar requirements are likely to exist with respect to the KEEP incentive.

In advance of the publication of the enacting legislation, below are some observations on the proposed incentive, based on the information provided in Budget 2018:
  • It appears that the share options must be granted at “market value” to avoid an upfront income tax, USC and employee PRSI charge on this date. This will require a company to carry out a share valuation on this date to ensure that the share options are not granted to an employee at a discount.
  • It is unclear whether CGT “Entrepreneur’s Relief” will apply to the ultimate disposal of shares acquired under the KEEP incentive. If this is available, a “key employee” may qualify for a 10% CGT rate on share disposal.
  • Advance Revenue approval or notification procedures may be required to implement the incentive.
It remains to be seen whether the enacting legislation addresses the above points."
 
Thanks , it seems that it will be more restrictive than I first thought. Probably a good thing.
 
Gordon Gekko said:
BS, you seem to have very little understanding of how the world works.
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Somewhat a broad sweeping statement, but let's see how we go.

Gordon Gekko said:
A scheme is introduced to help companies retain key staff and you’re wondering why there is no scheme to retain non-key staff
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No. I'm not wondering that at all.
I'm suggesting that the scheme be rolled out to all employees.
As an idea, that is. Do you have an issue with all employees of , say qualifying companies, being afforded the same incentives. If yes, why?

Purple said:
SME's aren't publicly traded companies. Who decides what the shares are worth?
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Gekko, your worldly wisdom is required in this corner.
 
TheBigShort said:
It sounds useful, not sure what is meant as 'key' employee. Ideally, extend it out to all employees in my view. Nothing like having an stake in ownership to appreciate the value of something.
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@Gekko. This was my first comment on this topic. Showing my support for the scheme and advocating it to include all employees, instead of defining who is and who is not a 'key' employee.
It's not rocket science, it's a simple suggestion.
 
You are jumping the gun Big Short. Details of the scheme will be clarified in the Finance Bill.
 
Sophrosyne said:
You are jumping the gun Big Short. Details of the scheme will be clarified in the Finance Bill.
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Oh I agree. I'm just pointing out that the UK scheme would appear to include all employees of qualifying companies (I'm open to correction), instead of limiting it to 'key' employees.
There may be a valid reason to limit it to certain employees, I'm not sure what those reasons are, or if those reasons would actually make sense.
 
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