IRD Warning on Employee Share Purchase Arrangements

Anyone advising in the startup space will have been aware that the Inland Revenue Department has been looking closely at some of the schemes designed to allocate benefits to employees by way of equity.

As you might expect, the type of schemes where the employee benefit is allocated at today's value but may be triggered later when the equity has a higher value, seemingly without the employee incurring tax on that increased value, have come under particular scrutiny.

The IRD has now issued a revenue alert (see attached) which you should check carefully if you are thinking of such a scheme and and then discuss with your tax advisor. For anyone who has implemented such a scheme, that call to your advisor is even more critical.

Tax is not the only issue of course with employee equity arrangements. Among other things, the Financial Markets Conduct Act has been a great help in clarifying securities law requirements but, if you're thinking of creating a large equity pool for people involved in the company then check carefully that you can do that without issuing a product disclosure statement (the new name for what used to be prospectuses and investment statements),

Image from https://www.flickr.com/photos/86530412@N02/8265147...courtesy of Stockmonkeys

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