How can issuing shares to employees, whether under an ESOP or not, benefit my restaurant, its growth and my employees?
Employee shares can instill a sense of ownership and investment in your employees. Because you’re looking to expand and scale up the brand, buy-in from your key employees is key. One way to foster dedication and buy-in is to issue those employees shares in the corporation.
Restaurants can use the issuance of equity to their employees to incentivize hard work. The idea behind giving employees shares is to align the interests of the employer with those of the employee. If given in accordance with a vesting schedule, shares incentivize the employee to stay at their job.
This can be done by way of issuing an employee shares right away, providing the employee with a promise of shares in the future (a “share grant”, discussed in the next article), or giving the employee the option to purchase shares under specified conditions on eligibility, option price, strike price and timeframe.
Tax consequences to the corporation and to the shareholder should be considered whenever issuing equity. Because the strike price of an option to purchase shares and the value of those shares can be different, tax consequences may be triggered for either party, depending if the price is deemed by Canada Revenue Agency to be too high or too low. Always consult your professional tax advisors as to the consequences of an issuance.
You should also consider your corporate structure when issuing shares or options to purchase shares. If you have many locations and issue the shares from the parent corporation, there is a weakened sense of connection between the employee’s efforts and their shareholding. Further, there could be a sense that the employee’s efforts could be overshadowed by the work of other employees at different locations. Comparatively, if you issue shares from the location’s particular corporation, the employee will see the direct benefit of their hard work.
If you are interested in issuing employee shares, call us at Du Plooy Law to further discuss your options. Also, be sure to read our article “I want to issue my employees shares. What are my options?” to get a sense of the different methods available to you and your business.