Growth shares can help companies reward selected employees or family members by giving them a share in future growth, without handing over existing value on day one.
What are growth shares?
Growth shares are a special class of shares that generally participate in the value of a company above an agreed value “hurdle”. This means holders can benefit from future growth in the company, while existing shareholders retain the value already built up.
How growth shares work
Participants acquire shares with bespoke rights. Those rights may have limited value initially, but can “flower” once the company exceeds the agreed valuation hurdle. The shares may or may not carry voting or dividend rights, depending on the commercial design.
When growth shares may be useful
Growth shares can be used for exit-based incentives, senior management rewards, family succession planning, subsidiaries within a group, or as an alternative where EMI is not available or not sufficient.
Key reasons for implementing a growth share scheme are:
- Incentivising selected senior employees or executives.
- Aligning key staff with business growth and exit value.
- Keeping initial acquisition cost and economic risk manageable.
- Transferring future growth to family members for succession planning.
- Supporting companies that do not meet EMI conditions or have reached statutory limits.
How can Stratos help you?
Stratos can provide practical, technically robust support tailored to the facts, the tax position and the commercial or family objectives behind the planning.
Key work which we often undertake for our clients is:
- Designing growth share rights and valuation hurdles.
- Reviewing tax treatment for employees, family members and shareholders.
- Preparing valuation support and HMRC-facing analysis where needed.
- Coordinating with lawyers on articles, shareholder agreements and leaver provisions.
- Comparing growth shares with EMI, CSOP, EOT, bonuses and other incentive structures.
Design a Growth Share Scheme That Supports Long-Term Value
Speak to Stratos before issuing growth shares so the valuation, tax treatment, commercial rights and documentation are aligned.
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Case Study
Driving Growth Through Sale-Linked Employee Incentives
The Challenge
Our client wanted to reward a key employee with a tailored incentive package aligned to the company’s long-term growth. Specifically, they were looking to implement an exit-only EMI share scheme with hurdle shares, where the employee would only benefit if the company was sold and achieved a certain valuation. The structure was designed so that the value of the employee’s shares would increase incrementally as the company’s valuation grew, ensuring strong alignment with business performance.
The Solution
We worked closely with the client and their legal advisers to design and implement a bespoke EMI scheme that met their commercial objectives. The option rights, articles of association and shareholder agreement were carefully structured to reflect the agreed valuation hurdles and to ensure the scheme qualified for EMI tax advantages.
The Value
The EMI scheme was successfully put in place and has proven to be a valuable incentive. It provided the employee with a clear reward path tied to company performance, while ensuring tax efficiency and legal robustness for the business.
FAQs
Growth shares usually only participate in value above a hurdle, so they can reward future growth without transferring existing company value.
Yes, they can be an alternative where EMI is not available, not sufficient or not commercially suitable, but the tax and valuation position must be reviewed.
Yes. A robust valuation is important because the initial value of the growth shares affects the tax position and should be justifiable if challenged.
Potentially. They can transfer future growth to family members while existing shareholders retain current value, but inheritance tax, capital gains tax and family governance issues need advice.
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Related Services
EMI Share Schemes
Succession Planning
ERS
Employment Taxes
Valuations
