Restricted Share Awards
What is a Restricted Share?Restricted shares are those acquired by an employee/director of a company, including shares acquired on the exercise of a stock/share option, where there is a “clog” or restriction on the disposal of those shares.
What are the attractions of a Restricted Share Award?The taxable value of the share award may be reduced in recognition of the fact that the shares may not be immediately sold/pledged etc. The reduction in taxable value depends on the length of the restricted period. See Table Below:
Who can shares be awarded to?Any employee or director of the company can be selected to participate.
Can the shares be in a holding company?The shares may be in the employer company or a company that controls the employer company.
How does a Restricted Share Plan typically operate?Under the terms of a written agreement, there is a restriction on the freedom of the director or employee by whom the shares are held to assign, charge, pledge as security for a loan or other debt, transfer, or otherwise dispose of the shares for a period of not less than one year (referred to as the “specified period”). During the specified period, the shares are held in a trust established by the employer for the benefit of employees and directors or held under such other arrangements as the Revenue Commissioners may allow. Specific nominee companies can be used to hold the shares. The written agreement referred to must be in place for bona fide commercial purposes and must not form part of a scheme or arrangement of which the main purpose or one of the main purposes is the avoidance of tax.
What happens if shares are sold early?Where the original restriction on the disposal of the shares is subsequently removed or varied during the restricted period, the income tax charge on the acquisition of the shares must be adjusted to take account of the actual period that the restriction was in place. This results in an additional tax payment for the employee or director in question. With planning the company issuing the shares can ensure that any such payment falls to be made by the employee or director. A Capital Gains Tax charge may arise if the employee / director realises a gain on the disposal of the shares.
Can the shares have dividend rights?The shares can have rights to a dividend. As the employees or director will be the beneficial owner of the shares they are entitled to receive any dividends paid during the restricted period and beyond.
Are there any tax filings required?The company will be required to report the share awards to Revenue. In some cases the employee may also be required to file a return with Revenue.
How can we help?We would encourage you to reach out to us if you would like to discuss the merits of a restricted share plan for your business. Equally, feel free to call if you would like to discuss other possibilities in relation to equity participation or remuneration planning or indeed taxation matters generally. As always, please feel free to reach out to your normal contact in Cooney Carey or any of the staff members listed below:
Gordon Hayden, Head of Taxation Services
Gerry Higgins, Tax Partner
Eamonn Madden, Tax Director
Gillian Conway, Tax Director