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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Share Council Medewerkersparticipatie 15 min
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Questions? We’ve got your back!

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!

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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.

Yes, the company and the board can amend or change the participation plan. Who need to agree to the change depends on what rules were set in place at the start. The changes always immediately go into effect for all new participants. A change of the participation plan will not always automatically apply to those who were already participating. The Trust Conditions and the Participation Plan are contracts entered into between the participant and the company/employer. These contracts can normally only be adjusted with written approval from both parties in the contract. If one party doesn’t approve of the changes, they will not automatically apply to you. Furthermore, if the Articles of Association are changed, which are not contracts you are a party to, they can change rights for Share- and Depositary Receipt Holders. These changes normally will only apply to new Share- and Depositary Receipt Holders coming in after the changes were excecuted. A current participant normally gets to keep their rights. But if you acquire new Depositary Receipts or Shares after the changes have been made, the new rules regulate those Shares/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! 

You have multiple possibilities here, but we recommend keeping it as equality based as possible. This can be done by giving out different trust conditions. You must be able to motivate what makes this employee stand out. For instance, you could decide that a full time worker gets more value than a part time worker, because they are more committed to the company. Just make sure that you can explain well why you chose to differentiate.

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Beginner

Participation

The answer is fairly simple: it depends on the rules you set as a company. Most of the time the following rules account:

1. When a employee leaves on good grounds they can sell back their shares for the price at that moment. The company does have a fairly long payment term because it should not bring the company in financial bad weather;
2. When a employee leaves as a “bad leaver” (fired on the spot for lawful reasons), they either get the actual cash back they once invested (we pretend the investment never happened) or they get nothing at all;
3. Some companies (like Share Council) allow everyone to keep their shares, we believe it is the best way to have and keep a large ambassador network. A conclusive answer to this question is found in the Trust Conditions that apply to your participation.

The participation plan is a document that contains the rules that apply to the process of becoming eligible to receive participation. For instance, it states who can be participants: just employees or also suppliers and ambassadors. How participants can finance their participation. And whether there is a maximum of participation one participant can hold. There are more “rules of engagement” that can be set in the participation plan. As long as it is about the possibility to participate or end the participation it will fit in the plan. As soon as rules concern any trade, buys/sell and hold regulation it will be put in a document controlling the General Trust Conditions (this especially accounts for depositary receipts). The participation plan is truly the welcoming document to anyone participating in your company.

Direct in Shares (happens almost never for employee participation because the shares always have to be transferred via a notary)
– Economic Ownership Rights (rights to the finances of a specific share)
– Certificates of Shares (Depositary Receipts, either via a foundation or a cooperation)
– Options on Certificates of Shares
– Stock Appreciation Rights

Extra’s but insufficient for most:
– Profit Sharing
– Employee boards to give a vote in the decision making process

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Average

STAK

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.

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Beginner

Eight principles of good practice in Employee Participation Plans

A blog about the 8 basic principles written by the European Federation of Employee Share Ownership (EFES). We highlight the main lesson of each principle and explain how each one can help you set up a participation plan or improve your current one. Start reading and begin your journey towards employee participation and making a difference

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Product

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.

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.

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.

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Product

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.

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.


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.

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.

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Fiscal

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.

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 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.

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.

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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.

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Explanation of Business Valuation: The essence and necessity

Business Valuation is something you will encounter at some point in your company’s development, probably sooner than you think. For employees, the value of their participation in the company may be more relevant. It is easy to get caught up in all the jargon, but really it is rather simple and I’ll try to explain here how it works and how it can be done.

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