Enterprise Management Incentive is a share option for emplyees to purchase company shares under the terms of an option agreement. This will stipulate how many shares an employee may get, how much they will have to pay, and when the shares can be purchased by executing the option. The exercise of an option could occur, for instance, after a predetermined achievement of time spent working for the company, after reaching specific performance goals, or when the company is sold.

When recruiting employees of a high calibre, it might be helpful to include share options or shares as part of the compensation package. This is especially true for software startups, which frequently face cash flow challenges. Even if the cash payment is lower than what is offered by larger organisations, it may be possible to convince a potential employee to join a company if they believe they can realise a considerable lump amount through the sale of shares.

Employee share ownership aligns the interests of a company’s owners with those of its employees, which benefits both parties. In addition, via the business expansion, everyone is working toward the same goal of maximising shareholder value in the hope that they will eventually profit, either by selling their shares or receiving dividends.

There is no clear response to this question. In some circumstances, it could make sense to give employees shares in the company right from the beginning. Nevertheless, this will often entail that employees will be required to pay for their shares or that they would be subject to a tax charge if their shares are handed to them or acquired at a price below their full value.

If the options on the shares can only be exercised if specific goals have been met, having share options rather than actual shares in the company might be a more effective incentive. And many businesses would rather their employees not have shares in the company from the beginning due to the issues that might arise if employees decide to quit. Therefore, offering them share options is almost always the best choice rather than giving them upfront.

When share options are given, the transaction has no tax liability. When an “unapproved” share option is exercised, income tax and possibly National Insurance are payable. When the shares are eventually sold, any growth in value after the option was exercised may be subject to capital gains tax.