If you have been involved in a company that has share option plans or is thinking of joining a start-up, it is important to know the plans. These plans exist for employees who have joined a company in its infancy and have been given options to buy shares at a future date when the price of the shares is set. The plan gives them an incentive to work hard and grow with the business. At a later stage, when the business has grown, they can make enough money to retire early or fund their start-up by selling their purchased shares.
How Company Share Option Plans Work?
It works like this: The employees give part of their salary each month (usually 1% – 5%) to the employer, who then invests it in the share of the company they work for. Once the shares are purchased (a process called “vesting”), these shares can be sold later to make up their investment plus any profits on top. The plan is tax-efficient as there is no capital gains tax until one sells their stocks, and any dividend from holding stock is taxed at 10%.
In this scheme, both employers invest in the employees where they want them to keep growing. In return, if an individual has been with a certain company for many years, they have earned more options, which means that if their shares rise in value, they can sell them while paying less tax. If you leave a company before your vested period expires, you would not be able to sell your vested options.
What is Vesting?
As previously mentioned, the company will invest an agreed amount into its share option plans where employees can then buy shares later. This later date is called “vesting,” which means that if you quit before this time expires, you would no longer be eligible to purchase these shares. The period needed before the option is fully vested depends on how long you have been with the company and your performance. You might also find that different types of stock are offered to certain employees, for example, restricted or non-restricted shares depending on whether they are CEO or junior staff members. The stock might also vest upon death, disability, retirement, or even termination.
In conclusion, company share option plans are a way in which employees can earn great financial benefits in the future by investing their monthly salary in company shares. The plan is free of capital gains tax for the employee, and any dividends are taxed at 10%. Furthermore, it is important to remember that you will not be able to sell your vested options if you leave before this time expires, so choose carefully when you join a start-up or young business.
