Hurdle Rates and Valuations

The first step to setting up a Growth Share scheme.

What is a Hurdle Rate, and how is it set?

You will need to set a Hurdle Rate for your Growth Shares before you can set up a Growth Share scheme on the platform.

A Hurdle Rate is the level, in £ per share, above which the beneficial owner of that share will have full economic rights to the company in question.

For example, if you have shares with a Hurdle of £1 per share, and the company is eventually sold for £3 per share, then you will participate in £2 for every share you hold. The Ordinary shares are also participating in that £2, as they participate in the full amount, but Growth Shares don't participate below the Hurdle.

The Hurdle rate is set by the company at a level that reflects the value of the company at the time at which the shares were issued, including a small premium to reflect the hope value of the shares.

This means that when you receive the shares you should not incur a tax liability, and only will need to pay capital gains tax on the eventual sale of the shares - based on the difference between the eventual share price and the the Hurdle Rate at which they were issued.

How can I get a Hurdle Valuation?

Unlike an EMI valuation, a Hurdle Valuation cannot be approved by HMRC before issuing the shares. Instead a 'self assessed' valuation for the current value of the shares is set, and a small premium is then applied to reach the Hurdle. This valuation is then kept on record.

Because it cannot be approved by HMRC, a Hurdle Valuation will need to be more conservative (a little higher) than an EMI valuation, to make sure there are no nasty surprises down the line. Other than this factor, and some slight differences in the format of the report itself, the valuation process is largely the same as it is for EMI.

When you'd like to start a new Hurdle Valuation, one of our valuation specialists will work directly with you to create your valuation report. They’ll guide you through the whole process, let you know what documents we need from you and make sure nothing is missed.

Simply contact the team when you'd like to get started valuations@vestd.com.

Once the valuation process is under way, the next step is to make sure your Articles of Association are suitable for Growth Shares, or adopt the Articles of Association provided by Vestd.

Our team, content and app can help you make informed decisions. However, any guidance and support should not be considered as 'legal or financial advice'.