Employee Share Plans in Europe and the USA - Sorainen

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Employee Share Plans in Europe and the USAThe United KingdomThe United Kingdom1. Securities law1.1 Offer of securities: As noted in the first chapter of this guide, the offer ofsecurities to the public generally requires the publication of a prospectus. Thereare certain exemptions from that requirement that may be relevant to employeeshare plans. Details of these exemptions are set out in the first chapter of thisguide. 11.2 Regulatory issues: The operation of an employee share plan and thedistribution of explanatory material normally falls within exemptions from theneed for approval under the UK financial services legislation. The exemptionsdo not extend to the giving of investment advice and the wording of employeecommunications should be carefully reviewed to exclude investment advice.1.3 Disclosure: Extensive disclosure obligations exist under UK financial servicesand markets law, in particular in relation to dealings in shares by directors andother persons discharging managerial responsibilities.2. Exchange controlsThere are no exchange controls in the UK.3. Financial assistance3.1 UK company:3.1.1 Public limited companies: Financial assistance is permitted in relation tothe acquisition of shares in a UK company, provided that it is given for1Under the Prospectus Directive, where a company offers securities to the public in the EU, or its sharesare admitted to trading on a regulated market in the EU, it needs to issue a prospectus which mustcontain extensive information about the company, including financial statements prepared inaccordance with International Accounting Standards (or equivalent). However, as noted in the firstchapter of this guide, CESR has issued "short-form" prospectus rules in connection with share offers toemployees. There are a number of useful exclusions and exemptions from the obligation to provide aprospectus, in particular where the total consideration of the offer (measured over a 12 month period)is less than €2.5 million, or where the offer is made to fewer than 100 persons per member state.Furthermore, a company which has securities listed on a regulated market in the EU does not need toissue a prospectus when it makes an offer to its employees or former employees provided that itmakes available a short information document setting out certain details of the offer. The informationrequirements for the information document follow those set out in CESR's Paper of February 2005.The UK regulatory authority, the FSA, has expressed the view that the grant and exercise of employeeshare options would not normally require a prospectus.UK/1729295/03 189 September 2010
Employee Share Plans in Europe and the USAThe United Kingdomthe purposes of an employee share plan subject to certain requirementsrelating to the company's net assets.3.1.2 Private limited companies: As from 1 October 2008 the financialassistance provisions for private limited companies were, subject tosome exceptions (e.g. where the financial assistance is given by aprivate subsidiary for the acquisition of shares in a public holdingcompany), abolished in the UK. Financial assistance is now permitted inrelation to the acquisition of shares in a private limited company,whether for the purposes of an employee share plan or otherwise.3.2 UK subsidiary of non-UK company: A UK company is permitted to givefinancial assistance to its UK employees to enable them to acquire shares in anon-UK parent company.4. Taxation of share acquisitions4.1 Employee tax and social security contributions4.1.1 Tax: An employee who acquires shares (which are not subject torestrictions) by reason of employment at a discount to market value orfree of charge, will normally be liable to pay income tax. The tax chargeis on the difference between the market value of the shares at the timeof acquisition and the amount, if any, paid for the shares. For the taxyear 2010-2011 (6 April - 5 April), tax rates range from 20% to 50%. 2If an employee acquires shares by reason of employment and theshares are subject to a risk of forfeiture which will be lifted within 5 yearsof acquisition, there will be no tax charge on acquisition, unless theemployee elects to pay tax at that point. There may be a later charge toincome tax when the shares cease to be subject to the risk of forfeitureor cease to be subject to other restrictions (e.g. restrictions on dividendrights) or are disposed of by the employee. Additional tax charges mayarise if share values are artificially reduced or increased. 323The 50% tax rate is a new highest marginal tax rate which was introduced from the 2010-2011 taxyear. The 50% tax rate applies to income over £150,000.Tax charges may apply to shares which have a value which has either been artificially depressed by atleast 10% within 7 years before the date on which the employee acquires them or artificially enhancedby at least 10% in any tax year (6 April - 5 April) after the employee acquires them. Income tax mayalso arise where shares are disposed of for more than market value, if the employee receives postacquisitionbenefits in connection with the shares or where partly paid shares are purchased.UK/1729295/03 190 September 2010
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Employee Share Plans in Europe and the USA - Sorainen

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