Why use growth shares rather than EMI?

Growth shares are typically used when EMI is not available - for example because the company exceeds the £30m gross assets limit, has too many employees, operates in an excluded trade, or wants to incentivise non-employees. They are more flexible than EMI but lack EMI's specific tax reliefs.

How is the hurdle set?

The hurdle is typically set at current unrestricted market value plus a margin (often 10-25%) to provide a defensible justification for the modest acquisition price. The exact level depends on company circumstances and recent funding evidence.

Do employees pay for the growth shares?

Yes, but typically a nominal amount (often par value or close to it) reflecting the modest market value of the right to share in future growth above the hurdle. The valuation supports that payment level.

Can growth shares be used alongside EMI?

Yes. Some companies operate both - EMI for qualifying employees and growth shares for non-qualifying participants such as non-executive directors or contractors. The two schemes coexist with separate share classes.

How often should growth share values be refreshed?

Where further awards are planned, the valuation should be refreshed at least annually and around any material event (funding round, major contract win or loss, restructuring).

Growth Shares

Growth Shares Valuation UK

Defensible hurdle pricing for UK growth share schemes - option-based modelling that gives employees real upside while keeping initial market value low and tax-efficient.

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What is a growth share valuation?

Growth shares are a separate class of share that only participate in equity value above a defined hurdle. By design, they have very limited value at the point of issue (because the hurdle reflects current value plus a margin), but they capture a share of future growth above that level.

They are commonly used by UK private companies that cannot or do not want to use EMI - for example because they have outgrown the £30m gross assets limit, employ excluded workers, or want to incentivise non-employees such as advisers and contractors.

An independent valuation of the growth shares at issue is the foundation of the scheme. It supports the price employees pay (often nominal), evidences the modest income tax charge on acquisition, and underpins a Section 431 election where appropriate.

When is it required?

Companies above EMI thresholds

Businesses that no longer qualify for EMI (gross assets, employee count or trading activity) but still want a tax-efficient employee equity scheme.

Non-employee participants

Advisers, board members and contractors who cannot hold EMI options but can hold growth shares.

Group / subsidiary incentives

Where incentives need to track a specific business unit rather than the consolidated group.

Protecting existing shareholders

Where founders and early investors want to limit dilution to genuine future value created above the hurdle.

Our methodology

Growth share valuations require an option-pricing approach: the right to share in future value above a hurdle is economically equivalent to a call option on the company's equity, struck at the hurdle.

Underlying equity value

We first establish the unrestricted market value of the company's ordinary equity using earnings multiples, comparable transactions and DCF as appropriate.

Hurdle setting

We work with the company to set a hurdle that reflects current value plus a defensible margin - typically calibrated against the latest funding round or a multiple of current performance.

Black-Scholes / Monte Carlo modelling

We model the value of the growth shares as a call option on the underlying equity, with inputs for volatility (calibrated to listed comparables), time to liquidity, dividend yield and risk-free rate.

Restriction and minority adjustments

We apply discounts for lack of marketability and for the rights set out in the articles and shareholders' agreement (vesting, leaver provisions, drag/tag rights).

Key UK considerations

Growth shares require a separate share class to be created in the articles, with carefully drafted rights - the legal drafting and the valuation must align.
The hurdle must be set at a defensible level - too low and HMRC may challenge the modest acquisition value, too high and employees see no realistic upside.
A Section 431 election is typically made on issue to protect future growth from being taxed as employment income.
Valuations should be revisited around significant events - funding rounds, material trading changes, restructurings - particularly if further awards are contemplated.
Growth shares do not benefit from the EMI tax reliefs (no Business Asset Disposal Relief unless personal company conditions are met) - the tax position should be confirmed with a tax adviser.

Optival provides independent valuation advice. We are not a regulated tax adviser and do not act for clients in dealings with HMRC.

Timeline & deliverables

Growth share valuations are typically delivered within 5-7 working days, reflecting the additional option-pricing modelling required. Urgent timelines can usually be accommodated.

Independent valuation report with option-pricing methodology
Underlying equity valuation supporting the hurdle
Sensitivity analysis on volatility, time-to-liquidity and hurdle
Summary letter suitable to support a Section 431 election where used

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