I agree, its great work - I quizzed Geoff last night at #growthtown on the logic of not doing a traditional ESOP. The approach makes a lot of sense where the board genuinely do want the employees to see upside (via dividends) at the time the company prospers as opposed to a liquidity event. Likely works best for companies who are growing organically supported by profits.
On Thu, Apr 2, 2009 at 8:12 AM, Niki Scevak <[email protected]> wrote: > > Legend Geoff! This is fantastic. I posted on > http://www.startup-australia.org/option-grants-in-australia so that we > all can refer back to it in the future. > > On Mar 31, 11:31 pm, Geoff McQueen - Hiive Systems > <[email protected]> wrote: > > Hi Alan, > > > > Thanks for taking the time to reply - those two articles were up the > right alley and worth having a read of. > > > > Since last week's email, things have moved along well and I've got a good > plan in place with the team. > > > > For the benefit of people trying to do this stuff in the future, this is > a short version of what I've found: > > > > 1. Granting shares directly to staff means the recipient has to pay tax > when they're granted at their marginal tax rate. This isn't good for an > individual's cash flow. The alternative is fringe benefits tax paid by the > company, which is government endorsed extortion (now well above the top > marginal tax rate, which itself doesn't kick in until much higher up the > income scale than it used to). Options are less evil than shares in this > respect, but there's still some evilness. > > > > 2. One solution is to use a Unit Trust. In very brief terms, the trust is > set up separate to the employer, the company then lends money to the trust, > usually interest free, and the trust then buys stock in the company. By > issuing new stock, the company doesn't have a CGT issue to deal with (since > you're not really selling existing shareholders pieces of pie, but instead > growing the pie). The employees are then allocated units in this trust which > are effectively stapled to the shares that the trust holds for them. > Employees then, through the trust, own the shares from day one, but they're > subject to a loan. You can pay dividends to the employees from day one also > (not that the tech types reading this list are likely to focus on > dividends). > > > > 3. Employees can then have the 'loan' owed by the trust on their behalf > paid down gradually through bonuses/vesting conditions and the like. > > > > 4. When it comes time to sell the shares - because of a trade sale, other > liquidity event or because the employee wants to sell them once they're paid > down and they've vested - the value of the share at the issue price is taxed > as if it were normal income (i.e., subject to marginal tax rates). The > capital gain is taxed as CGT, and if they've held the asset for more than 12 > months - which they bloody should have if you're making them vest - then > they get the concessional CGT tax rate (effectively 25% of the capital gain > value is then taxed as if it were normal income I believe). The important > part of this principle is that they don't pay tax until they've got cash in > their hands. > > > > 5. The costs for setting up the trust are tax deductible, including the > costs associated with professional advice on its configuration and rules. > > > > 6. The costs for running the trust are also tax deductible. > > > > 7. You can get a private tax ruling on the trust and the scheme to ensure > you don't get surprises later. > > > > There are a bunch more models that are a variation on this that you can > do too. If you're going to issue stock without vesting limits, and if you're > going to issue is to more than 75% of your staff on a fairly homogenous > basis, then you can issue $1000 per annum worth of shares completely tax > free; that model is covered in the attachment too. > > > > I've been getting some good advice on this from John Day at the > Melbourne-based Remuneration Strategies Group. Attached is a bit of an > overview of the different types of plans that they were commissioned to put > together by the Federal Government for just this sort of challenge. As with > all things, it's just a starting point, but I found the summary pretty > valuable. > > > > Hope this helps someone else down the track... if I'd had this PDF months > ago, it would have saved me a lot of grief. > > > > Geoff > > > > > > > > -----Original Message----- > > From: [email protected] [mailto: > [email protected]] On Behalf Of mmp1 > > Sent: Thursday, 26 March 2009 1:51 AM > > To: Silicon Beach Australia > > Subject: [SiliconBeach] Re: Advice/Experience Request: Employee > Share/Option schemes > > > > Geoff, > > > > i found these interesting also : > > > > http://www.mallesons.com/publications/2008/Nov/9710401W.htm > > > > http://www.mallesons.com/publications/2008/Dec/9722927w.htm > > > > Alan. > > > > > > > > RSG ESP & SOP.PDF > > 3538KViewDownload > > > --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Silicon Beach Australia mailing list. No lurkers! 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