Going for Growth: The Growth Share Playbook

Growth Shares in Ireland: How They Can Incentivise Employees and Grow a Business

What Are Growth Shares?

Growth shares are a specific class of shares designed to allow the holder to benefit from the uplift in the value of the company from time to time.

Growth shares are usually issued to senior employees as part of benefits package as a means of rewarding them for growing the business.   

A ‘hurdle’ is set by the employer (i.e. pre-defined value target) which must be met by the employee before they can participate in the growth. There can be several hurdles and even caps.

The hurdle should be high enough to incentivise an employee to grow the company but not too high that it is unsustainable and the employee, even if it reaches the hurdle, will not have an opportunity to sufficiently enjoy the spoils over and above the hurdle. 

Growth shares enable a business to bring on talent and grow the business while at the same time ring fencing the value in the company for the existing shareholders.

Rights Attaching To Growth Shares

The rights vary from transaction to transaction. However, typically, they have limited voting rights and no right to dividend.

Good leaver/bad leaver provisions are common. Restrictions on transfer is as standard.

There is no downside protection because participation is subject to achieving the hurdle which is pre-determined at the outset.

Conclusion

Growth shares are a clever way of incentivising employees to growth a business and rewarding them if they succeed.

It is important that any employer who may wish to issue growth shares to an employee seeks legal and tax advice prior to and during the transaction, as there are a number of legal and taxation matters to be considered during the process.

For more information please contact Méabh Flynn.

The content of this article is provided for information purposes only and does not constitute legal or other advice.