16th June 2026
Rewarding the people who help your business grow is an important decision, but it can feel like a difficult balancing act. Many business owners want to incentivise and retain key individuals without diluting the value they have already worked hard to build.
This is where growth shares often come into the conversation. Understanding how they work, how they differ from ordinary shares, and when they are most effective can feel complex, particularly for growing companies, startups and owner‑managed businesses planning for long‑term growth or a future exit.
Leon Nelson, Trainee Solicitor in our Corporate Team at Myers & Co, explains the essentials of growth shares, helping you understand how they can be used to motivate key people while protecting existing shareholder value and supporting your wider commercial goals.
Growth shares are a special class of shares created so that the holder benefits only from an increase in the company’s value above a set threshold, often called a hurdle.
Unlike ordinary shares, growth shares:
That distinction matters.
If a company has spent years building up value, founders and existing shareholders are often understandably reluctant to hand over part of that existing value to a new senior hire, director or adviser.
Growth shares can offer a middle ground. They allow a business to reward future contribution without simply handing over a slice of what has already been created.
When growth shares are introduced, the company is usually valued first. That valuation helps set the hurdle.
If, for example, the business is worth £5 million when the new shares are issued, the growth shares may only start to deliver value once the company is worth more than that figure.
If the business grows and is later sold for a higher amount, the holder of the growth shares can then benefit from the increase above the hurdle.
This structure changes the dynamic in a helpful way:
In other words, the reward is tied directly to growth, not to past effort. That is one of the reasons growth shares are often seen as a practical tool for aligning interests across a business.
Growth shares can be tailored to suit the commercial aims of the business.
Depending on the structure, they may:
This flexibility is one reason growth shares are often used to align interests across founders, management and investors.
At heart, growth shares are about encouraging long-term commitment and shared purpose. For growing businesses, cash flow can be tight.
Paying large bonuses or matching the salaries offered by larger employers is not always realistic.
Growth shares offer another route.
They give key individuals the chance to benefit if the business succeeds, which can be a strong motivator for people whose efforts will directly influence that success.
They can also be attractive from a tax perspective, although that is never something to assume without proper advice.
Where growth shares are structured correctly and acquired at the right value, future gains may be taxed under capital gains rules rather than as employment income.
If they are issued too cheaply, however, there can be an upfront income tax charge, which is why valuation and structuring matter so much.
Growth shares tend to work best where future value creation is the real focus.
They are commonly used in the following situations:
A scaling business may need to attract someone capable of driving the next phase of growth, without the ability to offer a top‑end salary.
Offering a stake in the upside can make the role significantly more attractive.
If an employee or director is central to the future of the business, growth shares can:
Many arrangements are designed so that the full benefit is only realised if the individual remains with the business or helps achieve agreed milestones.
Where a company is building towards an exit or funding event, it is crucial that everyone is pulling in the same direction.
Growth shares can help align founders, management and investors by ensuring key people benefit directly from increasing the company’s value ahead of a transaction.
EMI options can be highly tax‑efficient, but not all companies or individuals qualify.
Growth shares are often considered where:
Although the idea is straightforward, the detail needs care.
The company’s valuation at the time of issue is critical because it underpins the hurdle and affects whether the shares are being acquired at the right value.
HMRC’s guidance makes clear that growth-share arrangements often depend heavily on the company’s future prospects, so valuation is not something to treat lightly.
It is also important to decide exactly what rights the shares will carry and what should happen if the individual leaves the business.
A structure that looks sensible on paper can become problematic if the legal documents do not properly reflect the commercial deal.
Growth shares usually require changes to the company’s articles and careful thought about how the arrangement will work in real life, especially on an exit or where relationships change.
Tax is another reason to slow down and get the setup right. If someone receives growth shares for less than their market value, there may be an immediate tax charge even though no cash has been received.
That kind of surprise is rarely welcome. Early legal and tax advice can help avoid that and make sure the arrangement does what it is supposed to do.
Growth shares can be an excellent option for businesses that want to reward future contribution without giving away existing value. They are often particularly well suited to growing companies, ambitious management teams and businesses planning for investment or sale. When they are structured properly, they can bring focus, alignment and a genuine sense of shared ambition.
They are not, however, a one-size-fits-all solution. The valuation, the hurdle, the rights attached to the shares and the tax position all need careful thought. A structure that works beautifully for one company may be completely wrong for another, even if both businesses are successful and growing.
At Myers & Co, we work closely with business owners their tax advisors and accountants to assist with the documentation for growth share arrangements that are commercially sound, tax-efficient and aligned with your wider objectives. Give us a call, or make an enquiry to find out how we can help.
