Ownership via hurdle shares versus purchase rights
Growth shares are a separate class of share with rights that only convert to value above a specific company valuation, called the hurdle. Because their value at the point of purchase is low, the holder pays little to acquire them and becomes a shareholder immediately. Stock options remain a right to buy ordinary shares at a fixed strike price, with ownership arising only at exercise, and both approaches depend heavily on a defensible startup valuation.
- Growth shares require a valuation exercise to set the hurdle and price the shares correctly
- Options require setting a strike price, usually equal to current fair market value
- Growth shares give immediate shareholder rights, options do not until exercised
- Growth shares are a separate share class requiring articles of association changes, options do not require a new share class until exercised
Comparing hurdle shares to standard option grants
| Feature | Growth shares | Stock options |
|---|---|---|
| Ownership | Immediate | After exercise |
| Upfront cost | Low purchase price for the growth share class | Usually none until exercise |
| Value trigger | Company value above the hurdle | Share value above the strike price |
| Setup complexity | Higher, needs new share class and valuation | Lower, standard option agreement |
| Best suited to | Senior hires wanting immediate ownership | Broad employee grants |
Example hurdle valuation for early employee grants
Say a company is valued at 5 million euros. Growth shares are created with a 5 million euro hurdle, meaning they only carry value once the company is worth more than that. A valuation specialist might price these shares at 0.01 euros each due to the low chance of the hurdle being met soon, letting an employee buy a meaningful stake for a small sum. Under a stock option approach for the same company, the strike price would be set at the current 5 million euro valuation per share, and the employee pays that price in full at exercise, later, potentially with a much higher share price. See share grants for the mechanics.
Selecting instruments for senior hires and tax efficiency
- Growth shares suit senior hires who want immediate ownership and are comfortable with a more complex setup
- Options suit broad based employee schemes where simplicity and no upfront cost matter most
- Growth shares work well when a formal option scheme with tax advantages is not available or suitable in the local jurisdiction
- Options remain the more widely understood and portable instrument across European countries
Hurdle shares versus options, unpacked
- Do growth shares need a professional valuation?
- Yes, an independent or specialist valuation is usually needed to set a defensible hurdle and share price, since pricing them too low can create tax risk.
- Are growth shares available everywhere in Europe?
- Growth shares as a defined structure are best established in the UK. Similar hurdle share structures exist elsewhere but rules and tax treatment vary by country.
- Can growth shares convert to ordinary shares?
- Some structures include a conversion mechanic once the hurdle is met, but this depends on the specific articles of association drafted for the share class.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.