Stock Grant vs Stock Option

What is stock grant?
Company buys shares from open market and gives them to its staff according to an incentive programme.

What is stock option?
A company issues papers to its employees giving them the right to subscribe to shares of the company at a pre-determined price (usually below current market price) after a certain vesting period.

Similarities
Both forms of incentive plan enable the company to motivate employees to achieve superior performance as well as to align the interests of employees and shareholders’.
Both costs of incentive plan have to be expensed off against profit.

Differences
Expenses incurred to do stock grant is tax deductible as per cash compensation to employees. Stock option expenses are NOT tax deductible.
Determination of cost for stock grant is more definitive. There has been constant debate over the valuation of stock options.

Conclusion
SIA, SembCorp Industries, SMRT and StarHub, are recent adopters that have awarded employees with stock grants for the first time this year.

More expected to follow forth.

Advertisements

ACRA goes XBRL

Wef 1 April 2007, ACRA will require companies and local branches of foreign companies to file their financial statements in XBRL format via Bizfile.

To know more, sign up for “Public Awareness Seminar” and learn how to prepare and file financial statements in XBRL format.

Seminar will be held at Supreme Court Auditorium on Thursday, 30 November 2006 at 8.30 am to 12.30 noon. The eflyer says $12 (I think).

I would love to go and learn but alas I will not be in town. So to whoever intends to attend, pls share with us. Go to http://www.acra.gov.sg for more info.

Do a bit of national service for ACRA la..

Amendments to Companies Act (Part 2)

What are the other amendments made?

  1. Reforms in the capital maintenance regime.
  2. Liberalise the amalgamation process for companies.

Huh!!! Blur???
What do you mean? I share the same reaction as you. Allow me to present my understanding of these lesser known rules as compared to those discussed in Part 1, my earlier posting.

What is that?
The regime ensures that the shareholders cannot happily deplete capital from the entity without due consideration to the creditors’ interest and the working capital needs of its daily operations.

Under the old regime, the following are prohibited:-

  • financial assistance to 3rd parties to buy its shares;
  • reduce share capital (unless you got permission from High Court) and;
  • share buybacks.

Under the new regime, the following are now in force.

  • Company can now give financial assistance to buy its shares. How much? Up to 10% of share capital or if all shareholders are offered the same assistance.
  • Now a company can do a capital reduction through a special resolution subject to 2 conditions. The company must perform a solvency test and do the necessary publicity ie. an advert in a national newspaper.
  • Why do the publicity? If you, a creditor of the company, saw the Notice in the newspaper and are unhappy with the proposal, you may seek legal redress.
  • The directors must sign a “Solvency Statement” ie. to confirm that the company can meet its obligations and that assets > liabilities. So if the coffee aunty’s salary is not paid when due, the directors who signed that Solvency Statement may to pay her salary personally!

These changes further escalate the directors’ responsibilities in managing the affairs of companies. They are earning their fees. 🙂

Amendments to Companies Act (Part 1)

What are the amendments made?

  1. Shares no longer have a par value.
  2. Companies can hold treasury shares.

Effective date – 30 Jan 2006

What are the implications?

  1. In the absence of par value, a company may have greater flexibility in pricing new shares to be issued in raising new capital. This was a particular concern when distressed companies faced tremendous difficulties in attempting to encourage take up of new shares priced at par value.
  2. The term “Authorised Capital” is now part of history too.
  3. Treasury shares are shares of the company purchased during share buybacks for various reasons eg. to enhance shareholders’ value. The company now has the flexibility to hold these purchased shares in a treasury account for possible subsequent issuance eg. as part of employee compensation scheme.
  4. For balance sheets as at on or after 30 Jan 2006, you should not see any share premium account and capital redemption reserve. These accounts will now be part of Share Capital account under the Act.