ETASSUM23220 - Schedule 2 share incentive plan (SIP): Shares that may be awarded: Company status

Paragraph 27 is concerned with the “status” of the company whose shares are to be eligible shares. Its purpose is to ensure that the shares used in a Schedule 2 SIP are shares whose value cannot easily be manipulated.

The eligible shares must satisfy at least one of the four conditions in paragraph 27(1). The conditions are that the shares must be:

  • of a class listed on a recognised stock exchange (see ETASSUM23240),
  • in a company that is not a subsidiary (because subsidiary companies provide the greatest scope for manipulating share values),
  • in a company which is subject to an employee-ownership trust, or
  • in a subsidiary company which is controlled by a company whose shares are listed on a recognised stock exchange and is not a close company (or would not be close if it were resident in the UK) (paragraph 27(1)(c)) (see ETASSUM23250).

“Control” for this purpose has the meaning given by Section 719 ITEPA 2003 (see ETASSUM23140).

In other words, the only subsidiaries whose shares can be used in Schedule 2 SIPs are those:

  • which are themselves listed (paragraph 27(1)(a)), or
  • whose “parent” company is listed and not close (paragraph 27(1)(c)), or
  • under the control of a corporate trustee of an employee-ownership trust.

A subsidiary company which cannot use its own shares as eligible shares in a Schedule 2 SIP may still be able to use the shares of its parent company, whether or not the parent is listed (see ETASSUM23140).