caveat legal logo

Employee Share Ownership Schemes

Employee share ownership schemes are typically used to incentivize employees over a longer period of time, and to encourage retention of staff. They can also be utilized as tools to enable a company to develop its broad-based black economic empowerment profile.

gold circle

Trust factor

Former employee share ownership scheme clients include LocumBase (Pty) Ltd, Edulife Group (Pty) Ltd, The Solutions Team and Flamingo Capital Partners.

 “With employee share ownership schemes, there is no one-size-fits-all. Each scheme should be tailored to meet the specific needs of the business concerned“

- Sarah Lawrence

caveat legal panel attorney sarah lawrence

Different Approaches

Because issuing ordinary shares directly to employees can create unforeseen complications, different approaches to employee share schemes have been developed. These include issuing shares of a different class (such as non-voting shares), establishing an employee share trust, or the creation of a phantom share scheme.

The majority of schemes allow for the shares to vest incrementally over a period of time, thus encouraging employees to cultivate longer working relationships with the company. Many schemes also restrict transferability of the employee shares, at least for a minimum period of time.

Tax Considerations

Tax considerations play a major role in decisions about employee share scheme structure. The tax consequences of a particular structure, both in the hands of the employees and in the hands of the company, must be fully understood before an approach can be selected.

Get Advice

Our team of experienced corporate lawyers and tax advisors are available to advise on the most appropriate employee share incentive scheme for your company, and to draft the documents necessary to establish and administer the scheme.

Get in Touch

"*" indicates required fields

Hidden

FAQs

Frequently asked questions on Fintech & Cryptocurrency Law

There is no blockchain-specific law in operation in South Africa, but depending on the field/sector within which the technology is deployed, the regulations relevant to that sector will apply.

  • Financial Intelligence Centre Act, 2001 (FICA);
  • Financial Advisory and Intermediary Services Act, 2002 (FAIS); and
  • Conduct of Financial Institutions (COFI) Bill (expected to come into effect in 2023)

This refers to taxes levied on gains made in cryptocurrency transactions. The South African Revenue Services (SARS) currently taxes individuals on their cryptocurrency investments in the form of capital gains tax. We expect further developments in this area in the short-term in respect of reforms to the application of the foreign exchange controls on the export and import of cryptocurrency to and from South Africa.  There is also an indication of possible impending investment-related taxes on cryptocurrency funds. 

Fintech (from the terms “financial” and “technology”) covers the latest technological innovations in particularly the financial services sector including blockchain, cryptocurrency, insurtech, regtech, P2P, open banking, crowdfunding, mobile money etc. Fintech law requires an up-to-date knowledge of the rapidly changing law impacting this sector across a wide-range of regulatory frameworks and an understanding of the applicable technology. Due to the rapid pace of innovation in this sector, some fintech areas are unregulated or due to be regulated soon and therefore a general understanding of best practices and other jurisdictional approaches is also required with a pragmatic approach to advice.

Fintech products, services and partnerships require a multi-disciplinary team to advise on the applicable law:

  • Regulation of financial services and products
  • Regulation of payment services, lending and banking 
  • Anti-money laundering laws
  • Companies Act (particularly relating to “public offers”).
  • Investment funds regulations
  • Insurance law
  • Pension Funds 
  • Tax and Exchange Control
  • Data protection and data privacy

Furthermore, we note that the law on tax of cryptocurrency is evolving. In South Africa, cryptocurrency is treated as both income (taxed on the revenue account as “gross income”) or taxed as capital gains tax depending on whether a receipt is revenue or capital in nature. Taxpayers are also entitled to claim expenses associated with crypto assets accruals or receipts, provided such expenditure is incurred in the production of the taxpayer’s income and for purposes of trade. Base cost adjustments can also be made if the receipt is treated as CGT.

Optimized by Optimole