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Net Tangible Assets Market Valuation Methodology (Method 1)

  • The company has not raised capital of more than $10m in the previous 12 months before the valuation time;
  • At the valuation time, either the company:
  • has not been incorporated for more than 7 years; or
  • is a small business entity as defined under the ITAA 1997;
  • The company prepares or will prepare a financial report for the year in which the valuation time occurs in accordance with the accounting standards under the Corporations Act

If the abovementioned conditions are met and the company chooses to adopt this valuation methodology, the relevant formula is as follows:

Step 1  – Work out the amount of net tangible assets of the company (disregarding any preference shares on issue) at that time.

Step 2  –  Work out the amount of the return that would be required to be provided under the terms of any preference shares on issue at the valuation time if those shares were to be redeemed, cancelled, bought back or otherwise satisfied at that time (disregarding any contingencies as to the provision of that return and any return that would not rank before ordinary shareholders upon a winding up).

Step 3  –   Reduce the Step 1 amount by the Step 2 amount.

Step 4  –   Divide the Step 3 amount by the total number of:

(i)         ordinary shares; and

(ii)        any preference shares that may participate together with any ordinary shares in the residual assets of the company upon a winding up;

on issue in the company at that time.

Start-Up ESOP Checklist

  • No equity interests listed on a stock exchange (this applies to the issuing company, any subsidiary, any holding company and any other subsidiary of a holding company) at the end of the issuing company’s previous income year;
  • Incorporated for less than 10 years before the end of company’s most recent income year prior to the issue of the relevant ESS interests (again, includes the issuing company, any subsidiary, any holding company and any other subsidiary of a holding company);
  • Aggregated turnover does not exceed AUD$50m (this includes the turnover of the issuing entity and any connected entities and affiliates [as defined], however, there are certain exceptions in relation to specific entities such as venture capital limited partnerships, early stage venture capital limited partnerships, Australian fund of funds and exempt entities that are deductible gift recipient);
  • The exercise price of the options must be at least equal to the market value of the underlying shares to which they relate when the options are granted;
[Note – ‘market value’ may be ordinary market value or, if certain conditions are satisfied, the Net Tangible Assets value]
  • The employer must be an Australian resident company (even if the issuing company is the Australian company’s overseas parent company);
  • The individual employee participant is employed by the issuing company or a subsidiary of the issuing company;
  • The employee share option plan relates to ordinary shares only;
  • The predominant business of the issuing company cannot be the acquisition, sale or holding of shares, securities or other investments, or, if it is, the individual employee is not employed by the issuing entity and any other group company;
  • The plan must be operated such that no participant is permitted to dispose of the options, or the underlying shares following the exercise of the options, for the minimum holding period starting on the acquisition date and ending on the earlier of:
  • 3 years later or such earlier time as the Commissioner allows in the event of an earlier disposal of all of the shares in the company; and
  • cessation of employment to which the options relate; and
  • The individual participant cannot, just after the grant of the options and on a fully diluted basis, hold a beneficial interest in more than 10% of the shares in the company and is not in a position to cast, or control the casting of more than 10% of the maximum number of votes at a general meeting.

Start-Up ESS Checklist

  • No equity interests listed on a stock exchange (this applies to the issuing company, any subsidiary, any holding company and any other subsidiary of a holding company) at the end of the issuing company’s previous income year;
  • Incorporated for less than 10 years before the end of company’s most recent income year prior to the issue of the relevant ESS interests (again, includes the issuing company, any subsidiary, any holding company and any other subsidiary of a holding company);
  • Aggregated turnover does not exceed AUD$50m (this includes the turnover of the issuing entity and any connected entities and affiliates [as defined], however, there are certain exceptions in relation to specific entities such as venture capital limited partnerships, early stage venture capital limited partnerships, Australian fund of funds and exempt entities that are deductible gift recipient);
  • The discount on the shares is not more than 15% of their market value;
[Note – ‘market value’ may be ordinary market value or, if certain conditions are satisfied, the Net Tangible Assets value]
  • The employer must be an Australian resident company (even if the issuing company is the Australian company’s overseas parent company);
  • The individual employee participant is employed by the issuing company or a subsidiary of the issuing company;
  • The ESS relates to ordinary shares only;
  • The predominant business of the issuing company cannot be the acquisition, sale or holding of shares, securities or other investments, or, if it is, the individual employee is not employed by the issuing entity and any other group company;
  • The plan must be operated such that no participant is permitted to dispose of the shares for the minimum holding period starting on the acquisition date and ending on the earlier of:
  • 3 years later or such earlier time as the Commissioner allows in the event of an earlier disposal of all of the shares in the company; and
  • cessation of employment to which the shares relate; and
  • The individual participant cannot, just after the grant of the shares, hold a beneficial interest in more than 10% of the shares in the company and is not in a position to cast, or control the casting of more than 10% of the maximum number of votes at a general meeting.

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