If you've been invited to Vestd to accept growth shares (class V shares) in a company, it's important you understand the differences and conditions attached to the shares.
Vestd's growth shares are ordinary shares with exactly the same rights, apart from three key things:
1. The hurdle rate
Your growth shares will have a hurdle rate, which is the point at which your shares have full economic rights to capital distributions - or in other words, become valuable.
For example, if your hurdle rate is set at £1.20 and the company is eventually sold for £5 per share, you will take home £3.80 per share. Hurdle rates incentivise recipients to grow the company while also protecting ordinary shareholders from dilution.
When you accept the growth shares, you will have to pay the nominal value of the shares. The company will tell you how much is due upon acceptance.
As the hurdle rate will be set above the current value of the shares, the shares will be essentially worthless, which means you shouldn't incur a tax liability upon acceptance.
You'll only need to pay Capital Gains Tax when you sell, based on the difference between the eventual share price and your hurdle rate.
2. Rights to dividends
Your growth shares may have rights to dividends if they are awarded from a share class that has dividend rights.
However, it's important to note that while your growth shares are conditional (unvested) the board can decide on an individual basis whether you receive dividends or not.
But once the growth shares are unconditional (vested) they have to be treated like all other share classes, meaning all holders of unconditional growth shares in that share class must receive equal amounts of dividends.
3. Conditional equity
Your growth shares will likely have conditions attached to them. When you accept the growth share distribution, you will enter into the "Task Agreement" where you must fulfil specific criteria outlined in the agreement.
This can either be time or performance-based milestones, or both. If you do not fulfil the criteria, then the company may convert the V shares into deferred shares which have no economic rights.
You can see the conditions you must meet in the Growth Share Schedule on your agreement summary.
4. ITEPA 431 election
If you're an employee or director of the company, it is important that when you accept the growth shares you sign an ITEPA 431 election within 14 days.
This ensures you're protected against Income Tax charges upon sale. With an ITEPA 431, you'll only be subject to Capital Gains Tax at your usual rate.
5. Voting or non-voting
When growth shares are issued by the company via Vestd, they will either be voting (Vv) or non-voting (Vn) shares.
Shareholders of conditional (unvested) Vv growth shares are still entitled to vote on matters.
Similarly, once the Vv growth shares have vested and become unconditional, shareholder voting rights remain the same.
When a company issues you growth shares via Vestd, you'll receive an email to accept the growth shares and – if you haven't already – create your Vestd account to view the details and projected value of your growth shares.
Once you have accepted, you will need to pay the issuing company nominal value for the growth shares. They will provide the amount payable upon your acceptance.
Our team, content and app can help you make informed decisions. However, any guidance and support should not be considered as 'legal, tax or financial advice.'