Call options (hereafter referred to as ‘options’) are commonly issued to employees of a business to align the employees remuneration with the objectives of the Business. A call option is the right but not the obligation to purchase an underlying share at a certain price within a certain period of time.
Since 2015, the implementation of employee share schemes has become more attractive with changes made to the taxation of these types of schemes.
A specialist valuer is generally required to:
- Value the underlying share at the time that the option is issued.
- Value the option that is being issued to the employee; and
- Provide valuations at subsequent points in time.
- Rushmore Group can quickly and cost effectively value options issued to employees in private companies.
We also find can provide further assistance in relation to the obligations for payroll tax, as required.
There are two main valuation methodologies are used to value options under an employee share scheme. These are the:
- Black-Scholes Formula (This approach uses the share price of the underlying security as at the valuation date, the exercise price of the option, time period to exercise the option, the risk free interest rate and the volatility of the underlying share price.)
- Binomial lattice option model (This approach at different points in time models the underlying share price of the security and the value of the option at each point in time. Through a repetitive procedure working back through each point in time, the valuation of the option is made at the valuation date.)
These valuation methodologies are accepted by the ATO as appropriate methodologies.
Rushmore can value the initial options issued under the Employee Share Option Plan (“ESOP”) transaction and also half yearly or annual valuations on an ongoing basis.
We can also assist with determining the amount of payroll tax that may become due in relation to the options being issued.
In order to value the employee share option, there needs to be a valuation conducted for the underlying share price of the security. Rushmore Group are specialist business valuers who are experts at undertaking business valuations. Rushmore Group has valued more than 600 entities in recent times.
ATO requirements
Rushmore Group reports are prepared in accordance with ATO requirements and comply with requirements including:
- The type of assessment (fair market value)
- Contents of the report.
- Consideration of relevant discounts.
- Valuation dates.
- Type of valuation methodology.
- Expert training.
Andrew Firth, the Director of Rushmore Group is a Chartered Accountant with more than 20 years’ experience in valuations.
Andrew undertook specialist training in Real Option Valuation at Stanford University in California, USA in 2000. In particular, this course included advanced binomial option pricing modelling and other applications of option valuation to real world scenarios.
Andrew previously worked for Deloitte Touche Tohmatsu, PRGX and KPMG.
Rushmore Group provide quality valuation reports for a range of small to middle market sized businesses. Rushmore Group provide quick turnaround of reports and advice with many engagements completed within a two week time frame. Rushmore Group provides valuation services across Australia on a fixed price basis.
Pricing
At Rushmore Group we provide all of our ESOP valuation services on the basis of a fixed price. This gives our clients certainly and minimises the costs of implementing an employee share option scheme. Rushmore can provide a fixed price share option valuation report in the amount of $990 including GST.
For more information about having a business valuation or option valuation undertaken please don’t hesitate to contact Rushmore Group today on 1800 454 622 or via email info@rushmoregroup.com.au.