Expert Legal Advice on Growth Share Schemes for UK Businesses
Growth shares are a dynamic way to reward, motivate, and retain key employees and consultants, particularly for businesses seeking to align long-term performance with shareholder value, without diluting the existing ownership of current stakeholders.
The Jonathan Lea Network offers in-depth expertise on the legal design, structuring, and implementation of growth share schemes to help your business attract and retain talent while maintaining control over your company’s equity and future growth.
What Are Growth Shares?
Growth shares are a special class of shares that only participate in the increase in value of a company from the date of their issue. This means existing shareholders retain the benefit of the current company value, while new growth shareholders only share in the upside created after they join. For example, if your company is valued at £2 million at the time of issue, growth shares can be structured so that only the increase in value above this hurdle is shared with growth shareholders.
Key Features:
- Participate only in future company growth – protecting existing value for founders and investors.
- Immediate share ownership for participants – creating direct alignment with business success.
- Flexible, tailored terms – voting, dividend, and capital rights can be adjusted to meet company needs.
- Low initial cost – as shares are only entitled to future growth, they are often acquired at nominal value.
Why Use Growth Shares?
Growth shares offer several unique advantages for UK companies, especially where Enterprise Management Incentive (EMI) options are not available or suitable:
Commercial Benefits
- Motivate and reward key individuals based solely on value they help create.
- Avoid dilution of current shareholder value.
- Customise participation – schemes can be selective and structured for different recipients.
Tax Efficiency
- No income tax charge on issue, provided shares are issued at market value (typically low).
- Potential for Capital Gains Tax (CGT) treatment on disposal (current rates more favourable than income tax).
- Eligibility for Business Asset Disposal Relief or Investors’ Relief (subject to conditions).
Flexibility
- No statutory scheme requirements – unlike EMI, terms can be tailored to your business and commercial needs.
- Compatible with both employees and consultants – with careful planning, consultants may also benefit from attractive CGT rates.
Growth Shares vs. Share Options
While both can be used to incentivise talent, growth shares confer immediate ownership and are directly tied to value created after the shares are issued. Share options, by contrast, give a right to acquire shares in the future, typically requiring exercise and upfront payment at that time.
Growth shares may be preferable when:
- You want to give participants real equity from day one.
- There is a focus on long-term growth and alignment.
- The company’s size or trade restricts EMI qualification.
However, growth shares require careful legal structuring and clear documentation to manage potential tax risks, leaver scenarios, and shareholder protections.
How Growth Share Schemes Work
Setting Up a Growth Share Plan
- Valuation: Establish the company’s current value and set an appropriate “hurdle rate” – growth shares will only participate above this level. Independent valuation is strongly advised.
- Articles of Association: Amend to create the new share class and define all rights.
- Subscription Agreements: Document the terms on which participants acquire shares, including vesting, leaver provisions, and hurdles.
- Shareholder and Board Resolutions: Obtain necessary approvals and update statutory filings (e.g., Companies House).
- Plan Rules: Define eligibility, vesting, good/bad leaver provisions, valuation mechanics, and transfer restrictions.
- Tax and Compliance: Consider S.431 Income Tax (Earnings & Pensions) Act elections, HMRC valuation clearance, and ensure all employment tax implications are addressed.
Vesting Conditions
Vesting ensures that growth shares are earned over time or subject to performance milestones:
- Time-based (e.g., over 3-4 years)
- Performance-based (e.g., revenue or EBITDA targets)
- Exit-based (e.g., only vest on sale/IPO)
Vesting helps retain key people and incentivises performance that drives company value.
Legal & Tax Considerations
- Growth shares are not part of any HMRC approved scheme – tax efficiency can be high but treatment must be carefully managed.
- Participants must pay market value for shares – to avoid income tax.
- Good/bad leaver provisions are standard, with shares typically forfeited or repurchased if conditions aren’t met.
- Interactions with SEIS/EIS: Growth shares can risk qualifying status for investors under these schemes if not carefully structured.
- Articles and shareholder agreements must be reviewed to ensure they reflect new rights and restrictions.
Why Choose Jonathan Lea Network?
Our Growth Share Legal Services
We provide a comprehensive service to ensure your growth share scheme is robust, compliant, and tailored for success:
- Advising on the best share incentive solution for your business stage and objectives.
- Valuing your company and designing the optimal growth share structure.
- Drafting and amending articles of association, shareholder agreements, and all scheme documents.
- Advising on and implementing tax-efficient arrangements
- Preparing all subscription, plan, and employment documentation, including vesting and leaver provisions.
- Assisting with board and shareholder resolutions and Companies House filings.
- Guiding you through employment law, investor protection, and regulatory compliance.
- Supporting both companies and employees in understanding their rights and obligations.
Is a Growth Share Scheme Right for Your Business?
Growth shares are especially valuable for:
- High-growth startups and scaling businesses.
- Companies ineligible for EMI or with key staff who do not meet EMI requirements.
- Businesses wanting to attract, retain, and reward key people based on future success.
A well-designed scheme can unlock significant value for both the business and your team – but the right legal, tax, and commercial advice is critical to avoid pitfalls and maximise benefits.
Ready to Incentivise Your Team and Drive Growth?
Speak to our Specialist Growth Shares Lawyers Today
For expert, personalised advice on structuring and implementing a growth share scheme, get in touch with the Jonathan Lea Network. We offer a free, no-obligation 20-minute call to discuss your objectives and answer your initial questions.
Contact us:
- Email: wewillhelp@jonathanlea.net
- Phone: 01444 708640
- Make an enquiry online
Unlock your company’s potential. Reward future success. Protect your business.
Our Growth Share Schemes Solicitors
We are a firm of experienced solicitors specialising in the setup of Growth Share Schemes for businesses of all sizes. With our support, you can implement an effective Growth Share Scheme that strengthens your business and supports your long-term growth goals.
What Our Clients Say
Request a Free
No Obligation
20 Minute Call
This introductory call is to discuss your matter so we can provide a well-considered quote.
However, please be aware that the free 20 minute call is at our discretion. If you are more looking for advice and guidance on an initial call, we may instead offer a one-hour fixed fee appointment instead.
Our fixed fee appointments are between £200 – £300 + 20% VAT (£240 – £360 inclusive of VAT) depending on the seniority of the solicitor taking the call.