In times of staff shortages, entrepreneurs think about rewarding (talented) employees and managers with shares. But is that wise?
Share packages in employees can make future transfers more difficult. And not everyone can appreciate a share... Consider the following:
- Shares are not easy to understand. You have to pay for them and wait and see if they become worth more. And if they become worth more, you have to wait and see if anyone wants to buy them at that price.
- Shares have a value. That value must be calculated. Explaining the value is a tall order, especially if, as an entrepreneur yourself, you don't know the value of your business or how that value is determined.
- The price of the shares must be businesslike. Otherwise it is a matter of remuneration and the company will be subject to payroll tax. The tax authorities have the largest valuation practice in the Netherlands and are watching critically.
- The price of shares must be paid. A few percent of the value of the shares can quickly cost hundreds of thousands of euros.
- Equity financing must be businesslike, otherwise it will be seen as disguised pay. The bank should offer the same.
- Employees usually have no capital to pay the purchase price, but they do have an expensive mortgage and other obligations. An acquisition financing of the business where you work feels like an additional risk.
- An employee who buys shares becomes a minority shareholder. In that position, you usually don't have much to say. Paying but not having a say does not feel good.
- Shares have obligations. If the company is not doing well, shareholders must step in. Administrators look at the role of directors and shareholders to hold them liable afterwards.
- Many people prefer cash, for example as a bonus or profit sharing. With shares you have to wait for years, with cash you are helped immediately. Money talks.
- Share transfers always go through a notary. The notary will need a professional valuation to verify the transaction.
- The relationship between shareholders is established in a shareholder agreement. It contains restrictions and penalties. This is difficult for many people to understand.
- Usually an employee with shares is deprived of control by working with certificates of shares (STAK). This prevents you from voting in the shareholders' meeting.
Before starting a complex share buyback, take stock of what people themselves want. Don't make the assumption that they are going to receive those shares as a gift. We know a lot of entrepreneurs who set up a very expensive STAK with all the bells and whistles that subsequently attract no interest.
Only employees or managers who see themselves as future partners, co-shareholders or owners will see shares as a first step in the right direction. Most people, however, prefer cash.
