Sector: Software design, engineering, and development company
Business revenue: R30m+

Project Duration: 12 months


Introduction

An established business owner wanted to develop a sound employee share ownership plan that successfully combines equity ownership with incentives to grow the business and create wealth for employees.

Strategic objectives

Develop the processes and support structures with the Business Owner to allow existing employees to become shareholders.

Work Performed

1. Provided advice on various mechanism for creating reward mechanisms for staff.
2. Developed a share option scheme that met the business and existing shareholder’s needs.
3. Implemented the legal framework necessary to facilitate implementation of a share option plan.
4. Concluded an independent business valuation and assessment.
5. Reviewed and aided with drafting and finalization of necessary legal and compliance documentation.
6. Liaison and project manage interaction between legal and accounting professionals.
7. Coordinate and resolve areas of conflict and complexity throughout.

Outcomes achieved

• Establishment of Employee Share Ownership Plan (ESOP).
• Converted the company to appropriate legal structure to accommodate the ESOP.
• Drafted Shareholders Agreement and other necessary documents.
• Provide annual reporting in line with financial year-end of company.

Conclusion

The following matters are worth noting when considering the implementation of a long term share incentive structure.

1. Involve an independent expert in determining the value of the share incentive structure concerned.
2. Make sure that the scheme implemented can accommodate changes to the staff complement, that is, new joiners and employees leaving.
3. Consider the practical implications of potential growth, as well as possible contraction in the company fortunes, for both the company and the employees concerned. Be prepared to engage vigorously with employees if circumstances deviate from the plan!
4. Consider what possible transactions involving the company’s equity during the lifetime of the structure will have on such a transaction and the participants of the share incentive. This may form an important part in the negotiation process.
5. Always consider the tax consequences!

Introduction to our firm

Addison Advisory Incorporated provide high-impact business consulting services to established private companies in the domains of management, finance and transactions. We assist clients in realising the potential of their business and personal investments by focussing on solutions that add value. Our focus areas are corporate transactions, business development, strategy, organisational restructuring and governance matters.