Beginner

Who can own depositary receipts?

The company decides who can be granted depositary receipts. There are for instance companies on our platform which have chosen to provide depositary receipts to contractors or suppliers as well! 

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In our mission for equality you mind stumble onto some questions. The Share Academy will guide you through the journey and will help you get the answers you might need. We have room for everyone. It does not matter if you are a beginner or a pro, questions are always welcomed! We made sure to already answer the most common ones. Do you have a question that is left unanswered? Do not hesitate to contact us ???? support@sharecouncil.co or start chatting with us!

Bond

Certificates

Just to be clear, Share Council is not an exchange. Mainly because we as a platform would need to comply with certain strict regulation and even have a set of auditable permits from the Authorities of Financial Markets to be able to do so. This would make our platform too expensive for most Employee Participation plans. The consequences are small, there is just no pricing or bidding on our platform. The platform is used to facilitate and document transfers between individuals. As a company one can even go as far as prohibiting a transfer between employees overall. There is a feature for employees to be able to indicate that they would like to buy or sell something. This feature is proven to be very effective without turning the platform into an exchange. This just means that you can not indicate on the platform that you would like to sell 10 pieces for 8 euro’s each, where someone else then would respond to indicate that they would buy them for 7 euro’s each. What is possible is that you indicate you would like to sell 10 pieces, without mentioning a price.

Convertable

EOR

There are four main ways to set up Employee Participation with each their own specific custom adjustments. For that the possibilities are endless. In order from “true ownership” to “no ownership”, the four options are: Certificates of Shares (Depositary Receipts), EOR (Economic Ownership Rights), Options (on Certificates of Shares), SAR (Stock Appreciation Rights)

This is a very simple way to make an employee co-owner; all that is needed is a transfer contract. Contacting a notary is not necessary. The fact that it is simple to execute, also makes it an inexpensive option. Another advantage of this is that it truly provides ownership, which isn’t the case with a bonus, a share in the profits or SARs. Economically, a person with an EOR is seen as owner of the company. This results in the worth of their EOR being related to the intrinsic value of the company.

Participants can pay in numerous ways for their participation (being depositary receipts, shares, options or SAR). Most commonly known and used on our platform are the following four possibilities in order of preference:
– own resources (participant transfers cash)
– compensated via normal salary (one or multiple pay checks)
– compensated via a bonus
– loan given by the company to the participant

The reason to put “own resources” first is because this is the way the tax authorities always look at a transfer of any form of participation. Especially shares and depositary receipts of shares immediately hold value on the day of transaction (often the start of the participation). Preferably you immediately pay for these so called “effects” be it either from their own savings or via an arrangement with the company.

This means that a company sells only the economic rights of a share to an employee. The legal ownership stays with the company (or original owner of the share), but any economic gains or losses are for the “new owner”. It means that the original owner of the share waives their economic ownership rights to their shares. You transfer this economic ownership right to someone else who is now entitled to the profits that come in on the share and the increase or decrease of the share’s value. Legally, the original owner still owns the share, but someone else is entitled to any dividend paid out or any losses or profits when the share is sold. The rights to vote or reflect remain with the legal owner of the share.

Loans


If you agree to a convertible loan, you lend money to the company you work for. In the future you can choose to have your loan paid in shares or certificates. You also have the option to not do this and get paid in cash including the agreed upon interest rate.

Options

Yes you sell options in all countries, although limited to countries not being on political sanction lists or any other form of prohibition to do business with. An example of a country excluded from doing business is Iran. There are often limitations on US citizens because of the FATCA treaty signed with the United States of America. We do allow participation of US-citizens, although we will ask for extra information when these individuals sign up on our platform. Of course, within the European Union it will always be very easy to do business using our platform.

That is completely up to you if you trade options. However, when making this decision, there are a few things to take into consideration. If an employee has 5% ownership or more it is seen as a substantial interest. If this is the case, the employee will be taxed in box 2 for the increase in value. On our platform you can make sure an employee can not get more ownership than 4.9%. Besides that there is a feature that allows you to approve or disapprove of every trade.

An option premium is the price of an option. The price is defined by the intrinsic value and time value and is influenced by the exercise price of the option, the price of the underlying asset (share or certificate), interest rate, dividend, maturity and volatility.

Yes, we absolutely do. Options are widely used and acknowleged. We often offer them as “options on certificates of shares”. Eventually an option is a token moving from one person to the other to indicate whether they have a right to a share, and if so, how many. The token represents an agreement of which the value is laid down in a contract and the amount of tokens.

An option is a contract that gives you the right to buy a number of effects, such as shares or (often) depositary receipts, within a certain time for a predetermined price. This is especially valuable when the shares increase in price. The employee will be able to buy them for the predetermined (lower) price and will at the moment of acquisition already gain a certain value.

There are four main ways to set up Employee Participation with each their own specific custom adjustments. For that the possibilities are endless. In order from “true ownership” to “no ownership”, the four options are: Certificates of Shares (Depositary Receipts), EOR (Economic Ownership Rights), Options (on Certificates of Shares), SAR (Stock Appreciation Rights)

Options are only taxed when they are exercised. Say your option contract states that you can buy shares for €10. If the company’s value increases to €100 a share and you choose to exercise your option, you have to pay 50% income tax over the profit you make. In this case your profit per share is €90, so you would have to pay €45. If you then take into account that you paid €10 to exercise the option, you have made a profit of €35.

Implementing options is relatively cheap and easy. All that is required is a contract stating what the price and rules are regarding the options. The risks for employees are low. If the company’s value decreases they can choose not to use their options and nothing happens. If the company’s value increases and they want to buy shares, they can buy the shares for a lower price than people without options.

The best thing for the employee is to buy the share or depositary receipt as soon as possible. If they buy it now, it’s theirs, they don’t pay any more taxes over it, it’s in box 3. If the company becomes very successful then they can keep the profit they made. Stock appreciation rights or options are seen as a bonus by the tax authorities, because you get money later. So, if the company grows, and you get the money, 50% of that goes to the tax authorities. If someone starts working for you and you give them depositary receipts. For instance, €100 from their salary is paid in depositary receipts. The tax authorities see this as net salary or net bonus. They will require you to pay salary tax. This is a downside for the company. The more depositary receipts you give, the more taxes you must pay. In this case an option is better because that’s just a contractual agreement. There’s no money moving. For instance, if an employee gets the option to buy a share for €10 when the company is sold and the share is worth €10.000 at that point, the employee profits from this. You do have to pay taxes, but you still get a lot. This is an option for when there is not a lot of money on the employees or employers side.

SAR

SAR is an abbreviation for Stock Appreciation Rights. A SAR fits in the catagory of a “bonus” paid out to an employee based on the rise of the value of a share. Via SAR one is not co-owning the company but merely has a right on a potential bonus. The employee participation is connected to the value of the shares of the company in a predetermined period. If the value of the share(s) increases, employees will profit in the form of a bonus either paid out in cash, shares or depository receipts of shares. Some great advantages of the SAR are that in contrary to options an employees does not have to pay to participate, and contrary to true ownership the company nor the employee are paying any taxes at the moment the SAR is set up. All taxes are implied when the bonus is actually paid out (at the end of a term set by the SAR). The disadvantages are that a SAR does not offer true ownership which lowers the engagement effect of participation and the employee is eventually paying significantly more taxes on their profits if all goes well.

There are four main ways to set up Employee Participation with each their own specific custom adjustments. For that the possibilities are endless. In order from “true ownership” to “no ownership”, the four options are: Certificates of Shares (Depositary Receipts), EOR (Economic Ownership Rights), Options (on Certificates of Shares), SAR (Stock Appreciation Rights)

Shares

The company decides who can be granted depositary receipts. There are for instance companies on our platform which have chosen to provide depositary receipts to contractors or suppliers as well! 

A Stock Exchange is a place where people can buy and sell stock in lots of forms (shares, depositary receipts, options, funds and combinations of these). Typical for a Stock Exchange is that everyone can join to buy or sell these financial pieces (named effects). It is characterised as a public space to be able to buy and sell. For that it’s just like an actual market where you can buy products. Another specific characteristic is that people can make bids on these products while those offering the products can give prices. The idea is that a bid and a leave (price) are negotiated to eventually come to an agreement. Important to know about a Stock Exchange is that you are not allowed to set this up without permission and specific permits from the Authority of Financial Markets (AFM).

There are four main ways to set up Employee Participation with each their own specific custom adjustments. For that the possibilities are endless. In order from “true ownership” to “no ownership”, the four options are: Certificates of Shares (Depositary Receipts), EOR (Economic Ownership Rights), Options (on Certificates of Shares), SAR (Stock Appreciation Rights)

Yes absolutely! It is often done using depositary receipts. We think this is a great idea, because the more you can make all your stakeholders owners of your company the higher form of economic stability you create. Do always make sure that the subcontractor sends you an invoice for the work they’ve done. The company can then pay this invoice with certificates, with a total value equal to the invoice. Make sure you calculate how many certificates this should be based on a fair market value of the certificates (the shares of the company). It is common practice to pay the net amount of the invoice in equity and the tax amount (VAT) in cash. This way the subcontractor is not draining on cash while helping you out with your company. We (Share Council) also take the income tax into account and pay this part in cash as well. That’s up to you. All in all, nothing is as beautiful as having these extremely valuable stakeholders close to the company and owning part of the business. Together we make a change.

If a tag along is stipulated, a minor shareholder can decide to sell their shares as well if the major shareholder decides to sell. The minor shareholder can “tag along” with the sale, but is not obligated to. This is used to protect the minor shareholder, because they may not be looking forward to working with the buyer.

If a drag along is stipulated and a major shareholder wants to sell their shares, minor shareholders can be obligated to sell as well. This way all shares can be sold to one buyer under the same conditions. It is used to protect the major shareholder, because buyers often don’t want to work with minor shareholders. This way it is easier for the major shareholder to transfer their shares.

If options are vested, the employee can execute these and is often rewarded with depositary receipts. The idea is that an employee receives all options on day one but will receive the full rights to execute these options (buying the underlying depositary receipts) over a set period of time and/or after a certain milestone is hit. A standard vesting stipulation usually looks as follows: the vesting period is four years. After one year the employee will earn 25% of the option rights, then the percentage will increase per month to a total of 100% of the option rights after four years.

The best thing for the employee is to buy the share or depositary receipt as soon as possible. If they buy it now, it’s theirs, they don’t pay any more taxes over it, it’s in box 3. If the company becomes very successful then they can keep the profit they made. Stock appreciation rights or options are seen as a bonus by the tax authorities, because you get money later. So, if the company grows, and you get the money, 50% of that goes to the tax authorities. If someone starts working for you and you give them depositary receipts. For instance, €100 from their salary is paid in depositary receipts. The tax authorities see this as net salary or net bonus. They will require you to pay salary tax. This is a downside for the company. The more depositary receipts you give, the more taxes you must pay. In this case an option is better because that’s just a contractual agreement. There’s no money moving. For instance, if an employee gets the option to buy a share for €10 when the company is sold and the share is worth €10.000 at that point, the employee profits from this. You do have to pay taxes, but you still get a lot. This is an option for when there is not a lot of money on the employees or employers side.

A company can sell or give out as many options as they want, even more than there are shares, but we advise against it. This is because the help of a notary is needed to emit new shares and this costs time and money. Next to this, it is very unclear for investors or other shareholders to see who now really owns what, or is entitled to what. This might cause unwanted uncertainties. If you make sure you have as many shares as you have given out options, a person that wishes to exercise their options can be helped immediately. This is why we facilitate to run a foundation holding these shares on which options are sold, and can immediately when needed give out a certificate of that share. Hence the advice is to give out only as many options as you have shares available. N.B. We are not indicating that it is not possible to give out more options. If more options are given out than shares are available, a notary will always have to guide every exercise of an option.

A share is the ownership of a company and with that represents the company’s value and voting rights. When a company is divided over 10 shares and you hold two of these shares, then this person owns 20% of the company’s value and the vote of this person in the shareholder meeting also counts for 20%. Shares give shareholders certain rights, namely the right to dividend, voting rights and the right to call a meeting. The Shareholder’s meeting is authorised to suspend, remove and reward Board members, approve the annual accounts, amend the articles of association and make important decisions.

The idea behind Employee Participation is not equal in every situation. Often Employee Participation is linked to either financial participation (profit sharing or even ownership) or legal participation (a “say” in the decisionmaking process) or both. Our view on Employee Participation is that employees co-own the company they work for and maybe even also have legal rights to it (meeting and/or voting rights). Employees will participate in the company of their “boss”. This is an excellent way to reward employees for their hard work and involvement in the company. Research has shown that the more an employee can participate, starting financial and evolving to legal, the greater the commitment and communal strength of the team. You really create heroes when everyone co-owns the business.

STAK

The company decides who can be granted depositary receipts. There are for instance companies on our platform which have chosen to provide depositary receipts to contractors or suppliers as well! 

Depositary receipts is an easy way to make your employees co-owner of your company with minimal interference from a notary. You only need a notary for setting up a STAK and transferring shares to the STAK. After this, all you need is our platform. Because unlike shares, depository receipts can be transferred without a notary, all that is needed is a contract, which is provided on our platform.

The value of a depositary receipt corresponds directly to the value of a share. If a share is valued at €10 a depositary receipt is valued at €10. If 10 depositary receipts are given out per share they are each valued at €1. You can give your employees a 15% discount maximum if you wish, because depositary receipts pose some restrictions that you do not see with a share.

There are different options regadering the proportion in which you give out depositary receipts: 1:1, 1:2, 1:5, 1:10, 1:20, 1:25, 1:50, 1:100, 1:1000. When making a choice it is important to take into account how many people will participate and what the value of a share is. For instance, if a share is valued at €100 and you want to keep the threshold for people to participate low, you could choose to give out 100 depositary receipts per share. Then a depositary receipt will be valued at €1. This does mean that the distribution that comes in on that share will be divided over 100 depositary receipts.

That is completely up to you. However, when making this decision, there are a few things to take into consideration. If an employee has 5% ownership or more it is seen as a substantial interest. If this is the case, the employee will be taxed in box 2 for the increase in value. On our platform you can make sure an employee can not get more ownership than 4.9%. Besides that there is a feature that allows you to approve or disapprove of every trade.

The best thing for the employee is to buy the share or depositary receipt as soon as possible. If they buy it now, it’s theirs, they don’t pay any more taxes over it, it’s in box 3. If the company becomes very successful then they can keep the profit they made. Stock appreciation rights or options are seen as a bonus by the tax authorities, because you get money later. So, if the company grows, and you get the money, 50% of that goes to the tax authorities. If someone starts working for you and you give them depositary receipts. For instance, €100 from their salary is paid in depositary receipts. The tax authorities see this as net salary or net bonus. They will require you to pay salary tax. This is a downside for the company. The more depositary receipts you give, the more taxes you must pay. In this case an option is better because that’s just a contractual agreement. There’s no money moving. For instance, if an employee gets the option to buy a share for €10 when the company is sold and the share is worth €10.000 at that point, the employee profits from this. You do have to pay taxes, but you still get a lot. This is an option for when there is not a lot of money on the employees or employers side.

The directors are not appointed in the Articles of Association of the STAK. This is done in directors meetings and by registering this person with the Chamber of Commerce. This way you will not have to involve a notary every time you want to appoint a new director.

A Bad Leaver is an employee or someone with another form of an employment contract who breaches their contract of employment, is dismissed for gross misconduct or leaves within a certain defined period.

Yes, although limited to countries not being on political sanction lists or any other form of prohibition to do business with. An example of a country excluded from doing business is Iran. There are often limitations on US citizens because of the FATCA treaty signed with the United States of America. We do allow participation of US-citizens, although we will ask for extra information when these individuals sign up on our platform. Of course, within the European Union it will always be very easy to do business using our platform.

In principle no they are not. When you sell a Depository Receipt to someone else there should be no tax withheld on this sale (what normally does happen on a product in a store). Then why do I hear so much about high taxes on Employee Participation? That has everything to do with the value transaction from an employer to an employee. The tax authorities see every Depository Receipt (shares) transaction as a sale from one to the other, read: value going from one to the other, just as money. So if the employer gives a €10 share to the employee and the employee pays €10 back out of pocket, nothing will be taxed. If the employer does the same but the employee does not pay out of pocket, it is seen as net salary over which the employer is mandated to pay the salary taxes to the tax authorities. This of course also counts when an employer sells a €10 share to an employee which in reality is valued on €100. If the employee pays €10 out of pocket, the tax authorities will still see the other €90 as net income. This goes for any employer to employee transaction. As long as you can prove the employee paid in some way for the transaction, no taxes are withheld. The biggest problem that the tax authorities give us is not giving an easy way to know for sure they accept that valuation of €10 per share. The Dutch tax authorities are unfortunately still relatively unclear about this.

Depositary Receipts are also known as Certificates of Shares. When a share is transferred to a foundation (in the Netherlands a STAK), this foundation then issues a certificate of a share. This certificate gives entitlement to several things, for instance dividend that comes in on the underlying share or the value increase at a moment of sale of the underlying share and sometimes even the voting rights. Trust Conditions stipulate which rights are attached to the certificate. Briefly put, a certificate is a guarantee that gives you rights that derive from a share.

The benefits of a STAK are that it is a very easy way to make your employees or other people co-owner of the company. Once the STAK is incorporated and the depositary receipts are issued, all you need is our easy-to-use platform to organise your participation! So no notary is involved in the transfer of depositary receipts, all you need are a few clicks on some buttons.

STAK is an abbreviation of Stichting Administratiekantoor. A STAK manages shares of a BV or NV and issues certificates that correspond with these shares. A STAK is used to keep the voting rights at the STAK and transfer the profit entitlement. In other words, this way you can give a person a right to profit without having to provide them with voting rights. The voting rights stay with the STAK and the profit entitlement goes to the other person, because they have a certificate of a share. The STAK receives the dividend and distributes this to the persons holding a certificate of a share. However, you can also choose to give your participants voting rights!

Valuation

Commonly used method with which you can determine a company value is the Profitability Method. This method is very similar to the DCF method (Discounted cash flow). That’s why we won’t go into much detail here. The calculation method in particular shows many similarities with the DCF method. However, in addition to all the factors of the DCF method, the Profitability Method also assumes the future profit capacity of the company. This usually also includes other values that are important to shareholders. For example, important properties such as a patent, brand, domain name or other potential value-retaining or value-increasing components are involved. This makes it even more difficult to determine the free cash flow. You then have to determine a value for the domain name. No, that is not the eight euros that you pay for it at the domain farmer.

MORE OVER: This method seems too far-fetched for employee participation. Mainly because many employees find it very difficult to understand this. In principle, this does not only apply to the employees, but you yourself (as a non-valuation specialist) will also have a tough job. Experience shows that the simpler and more transparent the methodology is, the more effective the employee participation plan will be. It should be noted, however, that most employee participation plans start with one of the more complicated company valuation methods (often to determine a 0 point), after which a simple version will be used for future calculations. This ensures that a good ‘benchmark’ is set and that it is possible to check whether the simple method offers realistic results.

Nominal value is the value of the share that is laid down in the articles of association of the company. Nominal Value comes into play when a limited liability company (in the Netherlands a B.V.) is incorporated and when its shares are issued. The articles of association determine the initial value of these shares. This initial value stated is called the nominal value. In principle, this nominal value must be paid to the company in order for the shares to even exist and be held by someone. With a Dutch B.V. there is no minimum amount for the nominal value (it can even be less than a cent). For a Dutch NV (often used for stock traded companies) a minimum of €45.000 applies, that must be paid on all of the shares in total at the moment of incorporation.