It may seem counter-intuitive but when you are starting your business and setting up your company is the best time to ensure that your share capital is distributed wisely and that any share schemes that you intend to create are formed early.
The reason for this is that when the company is at an early stage and has very little value in it is the best time to award shares to business partners, family members etc. particularly if you intend to distribute profit through dividends as well as salary.
It is also the best time to think about setting up share schemes. This is because the value of the company will be low and consequently the number of shares you could allocate would be higher. This is particularly important when considering tax advantaged share schemes which have monetary limits on any awards. There are four HMRC approved share schemes which a small company can use and which deliver substantial tax advantages. These are:
- SAYE plan
- Share Incentive Plan
- Company Share Option Plan
- Enterprise Management Incentive Plan (EMI)
These UK plans are amongst the most generous in the world and can contribute to you being able to extract value from your company whilst minimising your tax liabilities.
IT and software companies should in particular be looking at these types of plans. If they develop their own software, which a large company wishes to buy, they may otherwise find that they have a very large capital gains tax liability.
Finally the best time to consider share plans is when you are setting up the company and forming your business plan. Working out who the key staff would be, your growth plans and exit strategy. When your customers start taking up your time, it may be too late for you to think about it.