Growth Shares: When to Use Them and Why They Work

14 May 2026

By Craig Darling, Partner, Corporate, Gilson Gray

Growth shares are a popular share incentive used by many UK private companies to reward and motivate key employees, directors or advisers. When structured correctly, they allow individuals to participate in the future increase in value of a company without giving them rights to the existing value already built by the founders or existing shareholders.

For growing businesses, growth shares can be a powerful tool for aligning incentives while managing tax efficiency and protecting existing shareholder value.

What Are Growth Shares?

Growth shares are a separate class of shares created by a company whose rights are designed so that they only benefit from value created after the shares are issued.

Typically, growth shares have a “hurdle” or “threshold” value. This means the shares only participate in the company’s value above a predetermined level, often linked to the company’s valuation at the time the shares are issued.

For example, if a company is valued at £5 million when growth shares are issued, those shares might only participate in proceeds above that value. Existing shareholders retain the first £5 million of value, while growth shareholders benefit only from future growth.

Companies usually create these shares by amending their articles of association and issuing a new class of shares under the framework of the Companies Act 2006.

When Should Companies Use Growth Shares?

Growth shares are typically used in situations where a company wants to reward key individuals for future performance without diluting the existing value held by founders or investors.

Common scenarios include:

1. Incentivising Senior Management

Early-stage companies often need to attract high-quality executives but may not have the cash resources to offer large salaries or bonuses. Growth shares allow companies to offer meaningful upside linked to company performance.

2. Retaining Key Employees

Growth shares can be structured with vesting conditions or leaver provisions, meaning the individual only fully benefits if they remain with the company for a certain period or achieve specific milestones.

3. Preparing for a Future Sale

Where shareholders anticipate an eventual sale of the company, growth shares can ensure management participate in the exit value created after they join the business.

4. Aligning Incentives with Investors

Private equity or external investors often want management to share in the upside generated by growth after their investment. Growth shares can achieve this without giving away historical value.

The Benefits of Growth Shares

When properly structured, growth shares offer several important advantages.

•   Alignment of Interests – Growth shares link the reward for management directly to the increase in company value. This creates strong alignment between founders, investors, and employees, all of whom benefit from the company’s success.
•   Protection of Existing Shareholder Value – Because growth shares typically only participate above a hurdle valuation, the value already built in the company remains with existing shareholders. This makes founders more comfortable granting equity incentives.
•   Potential Tax Efficiency – Growth shares are often structured so that the value at the time of issue is relatively low. This can reduce the upfront tax exposure for the recipient compared with ordinary shares issued at full market value. If the company grows and the shares are sold, gains may potentially be taxed as capital rather than income, depending on the structure and the individual’s circumstances.
•   Flexibility in Design – Growth shares can be tailored to suit the company’s objectives. Rights can be structured around dividends, voting, vesting schedules, and exit participation.

Practical Considerations

Although growth shares are attractive, careful structuring is essential.

Companies typically need to:

• Amend the articles of association
• Determine a defensible company valuation
• Consider tax implications and potential HMRC scrutiny
• Implement appropriate shareholder agreements and leaver provisions

Obtaining professional tax and legal advice is important to ensure the structure works as intended and does not create unintended tax consequences.

A Powerful Incentive Tool

For many private companies, growth shares offer an effective way to reward the people responsible for creating future value while protecting the interests of existing shareholders. When implemented thoughtfully, they can help attract talent, retain key staff, and align everyone around the common goal of growing the business.