By David Cammack, Managing Director, Forward Law. Last updated 21 October 2026.
Forward Law’s growth share scheme lawyers help growing companies use growth shares to give employees, directors and consultants a stake in the future growth of the business.
Growth shares, sometimes called hurdle shares, participate in value above an agreed threshold. This allows existing shareholders to retain the value below that threshold while sharing the benefit of future growth with the people helping to create it.
The shares may have a relatively low value when issued, making them more affordable for participants. However, that value needs to be supported by a valuation, and the rights and tax treatment require careful consideration.
We help you decide whether growth shares are suitable, agree how the scheme should work and prepare the articles and supporting documents. Our fee is fixed before work begins.
Book a free 45-minute discovery call
Growth shares at a glance
- How they work: Holders participate in value above an agreed hurdle, according to the rights attached to their shares.
- Tax: The acquisition may carry no employment income tax charge where the appropriate market value is paid and any necessary elections are made. Subsequent growth can fall within capital gains tax, subject to the relevant rules.
- Companies: There are no EMI-style limits on company size or qualifying trades. The structure must still comply with company law and existing shareholder arrangements.
- Participants: Employees, directors, consultants and advisers can hold growth shares. They become shareholders when the shares are issued.
- Award size: There is no equivalent to the statutory individual limits under EMI or CSOP.
- Valuation: A valuation supports the hurdle and subscription price. There is generally no routine advance HMRC valuation agreement process for a direct growth share issue.
- Our fee: £2,500 to £3,000, including the agreed changes to your articles. A valuation is separate and can be prepared by your accountant or our valuation partner for £1,500.
What are growth shares?
Growth shares are a separate class of shares with rights designed to give the holder a share of future growth above a specified threshold.
That threshold, usually called the hurdle, determines when the shares begin to participate in sale proceeds or other distributions covered by their rights. It may be set at the company’s current value or at a higher figure, depending on what you want the scheme to achieve.
For example, existing shareholders may want the business to grow by an agreed amount before the new shareholders begin to benefit. The hurdle allows that distinction to be recorded in the articles.
Because growth shares have more limited economic rights than ordinary shares, their initial value may be considerably lower. They can nevertheless have value from the prospect of future growth, even where the hurdle has not yet been reached. A low subscription price therefore needs to be supported rather than assumed.
Growth shares are not a statutory tax-advantaged scheme. Their operation depends on the rights in the articles and the supporting agreements, together with the company law and tax rules that apply.
How do growth shares work?
Suppose your company has an equity value of £2 million. You create growth shares giving a senior hire 10% of the proceeds above a £2.2 million hurdle.
The participant pays a subscription price supported by a valuation.
If the company is later sold and £5 million is available for distribution to shareholders:
- The first £2.2 million goes to the existing ordinary shareholders.
- The remaining £2.8 million is shared according to the agreed rights.
- The growth shareholder receives 10% of that £2.8 million: £280,000.
- The ordinary shareholders receive £4.72 million in total.
If the proceeds available to shareholders are £2.2 million or less, the growth shares receive nothing under these assumed rights.
This is a simplified example. It assumes no other preferential rights, dilution or adjustments affecting the distribution. The participant’s tax position also depends on how the shares were acquired and the applicable tax rules.
The documents need to define the calculation precisely. Saying someone will receive “10% growth shares” is not enough on its own: they need to understand what that percentage applies to and how future investment or a sale could affect it.
When a growth share scheme may be suitable
Growth shares are worth considering where you want someone to become a shareholder now, with their financial return linked to future growth.
They may suit a business where:
- You want to reward consultants, advisers or non-executive directors who would not normally qualify for EMI or CSOP.
- The company does not qualify for EMI, or a participant has reached the relevant option limit.
- A senior hire or incoming managing director expects an immediate equity interest.
- You want to distinguish between the value built by existing shareholders and the growth a new management team will help deliver.
- A family company or joint venture needs different rights for different shareholders.
Growth shares can also be used alongside EMI. In suitable circumstances, EMI options can be granted over growth shares, combining the growth hurdle with an option structure. The company, employee, shares and option terms must still satisfy the EMI requirements.
We consider these alternatives before recommending a structure.
How growth shares are taxed
Growth shares acquired by employees or directors will normally be employment-related securities.
Broadly, an employment income tax charge can arise if the participant pays less than the relevant market value. PAYE and National Insurance may also apply, particularly where the shares are readily convertible assets. The valuation and the rights attached to the shares are therefore important at the outset.
Leaver provisions often make growth shares restricted securities for tax purposes. A section 431 election may be appropriate so that the acquisition is assessed using the unrestricted market value and future charges under the restricted securities rules are avoided. The election is made jointly by the employer and participant and must be completed no later than 14 days after acquisition.
An election can increase the amount taxable at acquisition. It also does not guarantee that every later receipt will be taxed as capital, so we consider its effect before the shares are issued.
On a subsequent sale, growth in value will generally fall within capital gains tax, subject to the employment-related securities rules. Business Asset Disposal Relief may be available if its conditions are met, although growth shares often fail the relevant 5% tests.
Different rules can apply to genuinely self-employed consultants and overseas participants. We identify where specialist tax advice is needed and work alongside your accountant.
Growth shares or EMI options?
Where the company and employee qualify, EMI will often be the starting point because of its favourable tax treatment and the ability to defer share ownership until exercise.
With a direct growth share award, the participant becomes a shareholder immediately. They may need to fund a subscription price and any tax arising on acquisition, and the company needs suitable provisions for dealing with their shares if they leave.
The choice therefore involves more than comparing tax treatment. It also depends on when you want participants to become shareholders, what they can afford to pay and how you want the arrangement to operate.
Read about EMI share option schemes
We can explain the alternatives on the discovery call and help you decide whether growth shares, options or a combination would suit your business.
What our growth share scheme service covers
Advice on the scheme structure
We start with who you want to reward, how much of the future growth you are prepared to share and what you want participants to contribute.
We then work through the hurdle, participation percentage, dividend and voting rights, and leaver provisions. If entitlement is intended to build over time, we explain how that can be reflected in the terms governing the shares.
We also consider future investment, a potential sale and any existing EIS or SEIS arrangements that could be affected.
Valuation and the hurdle
The valuation helps establish the company’s current value and the value of the proposed growth shares. It informs the hurdle and subscription price, but those figures also need to reflect the commercial terms you have agreed.
Your accountant can prepare the valuation, or our specialist valuation partner can do so for a fixed fee of £1,500.
We coordinate the legal terms with the valuation assumptions so that the documents and valuation address the same arrangement.
Share rights and articles of association
A growth share scheme will usually require a new share class and amendments to the articles of association.
We draft the rights attaching to the growth shares and the shareholder resolutions needed to adopt the changes. We also check allotment authorities, pre-emption rights, the shareholders’ agreement and any investor consent requirements.
The articles need to explain how the hurdle operates and how proceeds are allocated, including what happens on a sale or when a holder leaves.
Subscription documents and the share issue
We prepare the subscription documents, board approvals and any appropriate section 431 elections.
We also prepare the relevant Companies House filings and arrange updates to the register of members and cap table. Where participants need to join an existing shareholders’ agreement, we address that as part of the documentation.
HMRC registration and annual returns
Growth shares acquired by employees or directors generally fall within HMRC’s Employment Related Securities reporting requirements.
Registration and the first annual return are normally due by 6 July following the tax year of the first reportable event. Annual returns, including nil returns where required, then continue until the arrangement is formally closed.
We guide you through registration and provide your accountants with the information needed for their filings, with responsibility for each step agreed at the outset.
What it costs to set up growth shares
Our fixed fee for setting up a growth share scheme is £2,500 to £3,000, depending on the number of participants and the changes required to your articles.
The valuation is separate. Your accountant can prepare it, or our valuation partner can do so for a fixed fee of £1,500.
We confirm the scope and fees before work begins. If the agreed work takes longer than expected, our fee stays the same. If your instructions change the scope, we discuss any revised fee with you before carrying out additional work.
Forward Law is not currently VAT registered, so we do not add VAT to our fees. If that changes, VAT will be added at the standard rate.
How we set up your scheme
We begin by discussing the business, the proposed participants and any investment or sale plans. We then review your articles, shareholders’ agreement and cap table before agreeing the main terms with you.
The legal drafting and valuation work need to be coordinated. Once the structure and valuation are settled, we finalise the articles, resolutions and subscription documents, arrange signing and complete the share issue.
Any necessary section 431 elections are dealt with as part of that process, rather than left until after completion. We also explain the filings and ongoing reporting requirements.
A straightforward growth share scheme can usually be set up in two to three weeks, depending on how quickly the valuation, information and approvals are available. If you need the shares issued before a particular date, tell us at the outset so that we can assess the timetable.
Who will handle your growth share scheme?
If you are looking for growth share scheme solicitors or a law firm to set up your scheme, it is helpful to understand how Forward Law operates.
Forward Law is a legal consultancy. Your scheme is handled by David Cammack, our managing director and a practising solicitor with more than 30 years’ experience as a commercial lawyer, including at several leading firms.
David advises on all types of share scheme and works directly with you, from the initial discussion through to the share issue and guidance on HMRC registration.
David is authorised and regulated by the Solicitors Regulation Authority in his own right. Forward Law is not a firm regulated by the SRA.
What we need from you
To get started, we will usually ask for:
- Your current cap table and details of existing options or commitments to award equity.
- The articles of association, shareholders’ agreement and relevant investor consent requirements.
- Details of any EIS or SEIS investment.
- The proposed participants, their roles and where they work.
- Your initial thoughts on the percentage of future growth to be shared and the hurdle.
- Any recent valuation, your accountant’s details and a finance contact for HMRC matters.
You do not need to have decided every term before speaking to us. We can help you work through those decisions.
Support as the scheme develops
After the first issue, you may want to add participants, deal with someone leaving or review how the growth shares will operate on a funding round or sale.
Further awards may need a different hurdle or a new valuation. Changes to existing rights can also affect value and tax treatment, so it is worth taking advice before agreeing them.
We can advise on these events and prepare the documents required. If you use our Legal Desk (outsourced general counsel), this support can be included within your agreed monthly hours.
Frequently asked questions
They can be, particularly where you want to give someone an immediate equity interest linked to future growth and EMI is unavailable or does not meet your objectives.
The hurdle needs to offer a realistic incentive, and the participant should understand both the potential return and the possibility that their shares receive nothing. The subscription cost, tax position and leaver provisions also need to be considered.
We help you assess those points before committing to the structure.
In practice, a properly supported valuation is an important part of setting up the scheme. It informs the hurdle and subscription price and helps assess the tax consequences of the award.
A hurdle above the company’s current value does not automatically mean the growth shares have no value. Their prospects of participating in future growth must also be considered.
Your accountant can prepare the valuation, or our specialist valuation partner can do so for a separate fixed fee.
Usually, yes. Unless your articles already contain a suitable growth share class and the necessary provisions, they will need to be amended to establish the intended rights.
Amending the articles requires a special resolution. Other approvals, consents or waivers may also be needed, depending on the company’s existing arrangements. We identify and prepare the relevant documents.
Yes, if their rights allow it and the company can lawfully pay the dividend.
Some growth shares have no dividend entitlement. Others participate only once specified conditions are met. The approach should reflect whether you want to reward ongoing performance, growth realised on a sale, or both.
Dividend rights can affect the shares’ initial value, so they need to be settled alongside the valuation.
The articles and supporting agreements should set out what happens. They will often require a departing holder to transfer some or all of their shares, with the price depending on the reason for leaving and any vesting arrangements.
For example, the terms might provide different treatment for a good leaver and a bad leaver, with a good leaver receiving market value and a bad leaver the lower of cost and market value. Because growth shares are shares rather than options, the leaver provisions do the work that lapse provisions do in an option scheme.
We explain the choices when designing the scheme and can advise when a particular situation arises.
Talk to our growth share scheme lawyers
If you want to give your team a stake in the future growth of the business, we can help you decide whether growth shares are suitable, how the hurdle and rights should be set and what would be involved in setting the scheme up.
Book a free 45-minute discovery call to discuss your plans. We can then provide a proposal setting out the work and the fixed fee.
