Valuation of Share Options

Incentivising key employees with capital rather than income is an increasingly popular mechanism for employers. While it is both sensible and financially beneficial to find a tax-efficient solution to incentivising key employees, it is vital to ensure that the chosen mechanism aligns both with the shareholders’ strategic aims and the companies culture and values – even if that means following a less tax-efficient option.

At Price Bailey, our combined team of Strategy, Corporate Finance and Tax experts work to understand:

• The specifics of your business,
• The purpose of and expected recipient of the options arrangement, and
• Whether there are any existing schemes or tax reliefs

Which all may have a material effect on the outcome for 1) the most appropriate share arrangement and 2) how those share options are likely to be valued.

Help to structure your options scheme

Deciding on the right scheme

Our specialists are experienced in calculating valuations and advising on the tax implications for all current schemes:

• Share Incentive Plans (SIPs)
• Save as you Earn (SAYE)
• Company share option plan
• Enterprise Management Incentives (EMIs)
• Unapproved share options
• Growth shares
• Nil paid shares

Understanding valuation

We undertake several share options valuations each month across the firm, alongside valuation projects for other purposes such as valuations for sale, minority shareholder exits and disputes. We have a thorough understanding which valuation methods to apply, when and why.

Whilst many of the methods and skills overlap with company valuations, the nuances are highly specific and dependent on each circumstance, meaning we do not default to a standard methodology.

We approach each engagement as a unique project and the methodology used reflects what is most appropriate for that particular scenario. In some circumstances, this means combining elements of multiple valuation methodologies or utilising additional valuation methods, such as the Black Scholes method.

Formalising the scheme

Once the valuation is agreed, Price Bailey continues to manage the process throughout negotiating the terms of exercise on the scheme, drafting share scheme documentation, and completing your HMRC tax clearance application to ensure the structure is proven compliant. We can support in building a forecast capitalisation table and ownership structure to illustrate how ownership and dilution are impacted by the scheme, and how this will vary with different exit scenarios. We will also assist your lawyers who will draft the necessary legal agreements.

Our team are equipped to advise you on any structure that you may be considering, and are happy to discuss the various options available with you before you decide how to proceed.