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Use of trusts in transaction structuring has become more prominent – Orji

Use of trusts in transaction structuring has become more prominent – Orji

Theresa Orji, Managing Director, Vetiva Trustees Limited in this interview discusses employee equity benefit schemes as an option that companies may consider in achieving the objective of keeping their workforce satisfied, motivated, and committed, writes Iheanyi Nwachukwu.

What are employee equity benefit schemes?

An Employee Equity Benefit Scheme also known as a staff share scheme is an arrangement where employees of a corporate entity are allowed to enjoy some form of benefit from the Company’s equity.

They are typically constituted as a reward for past performance or an incentive for future achievements that align with the Company’s goals and objectives and serve to encourage employee loyalty in the medium to long term.

There are various types of employee equity benefit schemes that can be implemented by a company, and each scheme is structured in accordance with each company’s objectives in implementing the scheme.

For example, we can have Share Award Schemes in which the company’s equity is awarded free of charge to deserving employees probably based on past performance, or Share Options Schemes by which the Company affords its employees the opportunity to purchase shares at a future date for a price that is set today as a means of incentivising future achievements.

What role do trusts/trustees play in employee equity benefit schemes?

Setting up an employee equity benefit scheme under a trust lends some transparency and authenticity to the structure as employees can be assured that their equity interests in the Company have indeed been set aside as professed to them.

This is where the trustee comes in, to hold legal title to the scheme shares for the benefit of the employees as well as administer the scheme in accordance with the legal documentation establishing the scheme. Accordingly, any benefits accruing to the scheme’s equity are passed on to the employees by the Trustee. The Trustee also provides guidance and expertise in the structuring and set-up of the scheme.

Could you provide a basic definition of “Trusts” and why it has become such a prominent service, evolving into a thriving industry?

A Trust is an arrangement where a party known as the Trustee, holds the legal interest in property, either real or personal, for the benefit of other parties or persons or for some purpose permitted by law.

The role of the trustee originated from legal doctrines of equity which over time recognised two distinct forms of ownership interest, namely, legal ownership which deals with legal title and beneficial or equitable ownership with the right to the benefits of the property.

As the business scape evolved, the use of trusts in transaction structuring has become more prominent as it lends a level of comfort to both sophisticated investors and amateur investors alike since you have an independent and impartial third party, often charged with protecting or bridging conflicting interests such as may exist between lenders and borrowers, issuers and bondholders, fund managers and unitholders, co-beneficiaries of trusts and other fiduciary vehicles, and so forth.

What are the considerations a Company ought to bear in mind in structuring an employee equity benefit scheme?

There are a number of things to consider in setting up an employee equity benefit scheme vis-à-vis the Company’s objectives for setting up the scheme, such as (i) funding which speaks to the source of the scheme shares – that is, will new shares be issued or cut out from existing shares, (ii) the accounting and tax treatment of the scheme – which will largely be based on the type of scheme to be set-up; (iii) the applicable regulatory regime, for instance the Rules and Regulations of the Securities and Exchange Commission made pursuant to the Investments and Securities Act requires all shares issued by public entities to be registered with the Securities and Exchange Commission thus where a public entity is looking to issue new shares in setting up its scheme for employees, such shares will require SEC approval before any issuance is made; furthermore (iv) board and shareholders’ approvals would also be required in line with the company’s memorandum and articles of association in addition to the fact that there may be some dilution risks worth-considering by the shareholders, depending on the scheme structure.

All these will help in determining the type of scheme to be implemented. At the point of the establishment of the Scheme, the company will also need to consider eligibility criteria – that is, who qualifies to be a member of the scheme in addition to the terms and conditions for vesting of the scheme shares as well as guidelines on the effect of staff exits on their membership of the scheme.

Is there an ideal size of workforce or corporate entity for employee equity benefit schemes?

Employee Equity Benefit Schemes may be implemented by public and private entities, small and medium-sized businesses as well as large corporates and there is no ideal size of workforce. The determination of the scheme structure will be largely guided by the company’s objectives. For example, the company may consider that in line with its objectives only certain cadre of its employees should be eligible to benefit under the scheme or may implement a hybrid scheme to foster inclusion of all its employees based on their contributions to the bottom-line.

What other services does Vetiva Trustees offer to corporates?

Response: Vetiva Trustees offers a myriad of trust services and solutions to corporate entities ranging from security trust services for security and debenture trusts, syndications, and club deals; trusteeship to Bond and Note offerings, Collective Investment Schemes, and Employee Benefit Schemes as well as Escrow Agency services.

Are there any options available to individuals?

Successful individuals, with ever-growing financial requirements and aspirations, high or ultra-high-net-worth individuals may wish to put in place estate planning structures to safeguard and consolidate their continuously growing assets, as well as plan towards a smooth, confidential, and tax-efficient transfer of those assets from one generation to the next, while maintaining an active role in making investment decisions.

Given their comparative benefits, Trusts remain an attractive vehicle for leaving a legacy while securing the future of beneficiaries and ensuring an adequate succession structure is put in place, even while the settlor is alive. For instance, one can structure a succession plan for his estate while setting up a private foundation.

At Vetiva Trustees, our understanding of the fact that no two individuals are the same and consequently objectives would differ spurs our passion for the setting up and management of bespoke trust structures while maintaining the highest fiduciary standards. We also have service offerings for low-middle income earners which cut across education trusts and estate planning devices.