Employee Share Schemes
Yesterday I received an enquiry, caller is planning to give shares to his chosen employee as carrot to motivate loyalty and dedication, asked me how to go about doing it.
You as business owner can do one of the 4, or combinations of them :
1. Consider transferring shares from existing Partners to the chosen staff ( say your COO ) or issuing new shares. Either case you need to do share valuation for e-stamping purpose at ACRA, the easiest way is to do this valuation using latest Net Asset valuation as shown in your Balance Sheet, or
2. You consider implement Employee Stock Options Plan (ESOP). Firms often grant their employees the conventional “call option.” It gives the employee the right but not the obligation to buy the company’s stock at a predetermined price. If, for example, the stock is trading at $10 today and the options, which will vest in two years, allow the worker to buy each stock at $12, the employee will only exercise the options if the shares trade for more than $12 in the stock market when they vest. If the shares are worth less, it is cheaper to purchase the same stock via a regular broker. Or
3. You giving Stock Grants to your COO. A stock grant occurs when an employer pays a part of the compensation of an employee in the form of corporate stock. This means a bit less cash in your pocket at first, but the good news is it usually means the firm is investing in your future and wishes to employ you for many years to come. In most instances, the stock is restricted for the employee. Although the employee is the legal owner of these shares, he cannot sell them until the restrictions are lifted, at which time the shares are said to have vested. Your company may award your COO 10,000 shares, for example, which will vest in 2 years. During those initial 2 years, the your COO cannot sell them. Or
4. You can consider giving Preference Shares to your COO. Preference Share is a special class of shares which may have any combination of features not possessed by common stock. The following features are usually associated with preferred stock:
* Preference in dividends
* Preference in assets, in the event of liquidation
* Convertibility to common stock.
* Callability (ability to be redeemed before it matures), at the option of the corporation
* No Voting Right
Some elaborations here on Preference shares –
1. No obligation for dividends: A company is not bound to pay a dividend on preference shares if its profits in a particular year are insufficient. It can postpone the dividend in case of cumulative preference shares also. No fixed burden is created on its finances.
2. No interference: Generally, preference shares do not carry voting rights.Therefore, a company can raise capital without dilution of control. Equity shareholders retain exclusive control over the company.
3. Trading on equity: The rate of dividend on preference shares is fixed. Therefore, with the rise in its earnings, the company can provide the benefits of trading on equity to the equity shareholders.
4. No charge on assets: Preference shares do not create any mortgage or charge on the assets of the company. The company can keep its fixed assets free for raising loans in future.
5. Variety: Different types of preference shares can be issued depending on the needs of investors. Participating preference shares or convertible preference shares may be issued to attract bold and enterprising investors.
Hope above sharing helps some business owners here who may be thinking of giving shares to your chosen staff.
If any of you needs further details or assistance on this matter, don’t hesitate to let me know, glad to help.
Corporate BackOffice can provide following service relating to Employee Shares Schemes :
1. Adoption of ESOP or SGP ( Stock Grant Program )
2. Issuance of Stock Option or Grant
3. Conversion of Stock Option or Grant
If you need help, feel free to contact us at :
(M) +65 90880669
