Inclusive expansion: Employee Share Schemes put minority stakeholders on the map
International expansion is a key strategic move for South African businesses looking beyond local borders to drive growth and diversify risk. International expansion enables South African businesses to access new customers, tap into larger markets and benefit from more stable economies. It also offers a hedge against local economic volatility and currency risks.
But beyond the corporate headline of ‘going global’ lies a more nuanced challenge. How can these business owners help their shareholders, especially minority stakeholders, to participate in offshore value creation without incurring individual costs or complexity?
According to Brandon Voges, Business Development Manager at Sovereign Trust SA, while many shareholders understand the importance of diversification, they often do not have the resources to establish their own offshore structures. “It is an uneven playing field that potentially limits shareholders’ long-term wealth creation,” he says.
Employee Share Schemes (ESSs) offer a practical way to include everyone in the team. “Instead of requiring each shareholder to establish a standalone offshore entity, a well-structured ESS can hold shares on behalf of multiple beneficiaries within a single trust. This approach reduces cost, simplifies administration, and aligns the interests of all parties involved, without sacrificing control or compliance.”
The real strategic value of ESSs
While ESSs are often associated with executive compensation or long-term incentive plans, their role in offshore structuring goes far deeper. When used as part of an international expansion strategy, they can provide a powerful mechanism for collective ownership, succession planning and tax-efficient cross-border participation.
“An ESS can be a stepping stone,” explains Voges. “It gives minority shareholders a seat at the table in the offshore structure today, and potentially allows them to graduate into private offshore arrangements in future, as and when their personal financial circumstances evolve.”
The benefits extend beyond accessibility. With the right jurisdiction and trust architecture in place, offshore ESSs can facilitate long-term estate planning, protect shareholder value across generations, and provide clarity around how future exit events or liquidity scenarios will be handled.
Just as importantly, ESSs foster deeper engagement from minority stakeholders who now have a tangible connection to the offshore entity’s performance.
Structuring an ESS that endures
ESSs are typically set up as trust structures located in offshore jurisdictions that offer an established reputation for trust business, a strong tradition of enforcing trusts, modern trust legislation and no or low taxation for trusts.
By consolidating shareholder interests through a single trust, businesses can streamline administration and reporting, ensure regulatory compliance and create long-term value for investors without the upfront burden of individual offshore set-ups. A properly structured ESS can also help with international estate and succession planning, providing continuity and safeguarding shareholder value across generations.
The trust can be used to create an internal market in shares and the assets held in a trust are not available to creditors of the business or its shareholders. Any potential conflicts of interest can also be avoided because the trustees are required to act in the interests of the beneficiaries.
Of course, these structures do not build themselves. Jurisdiction matters, as do tax considerations, regulatory requirements, and the specific terms built into the trust deed. Key decisions around vesting terms, exit conditions and dispute mechanisms need to be clearly defined from the outset.
Education is equally important. Beneficiaries need to understand more than what just what they are entitled to; they also need clarity on how the structure works, and what the long-term expectations are. It has to be crystal clear than an ESS is a strategic vehicle for long-term value creation, and not just a short-term share bonus.
“Too often, we see businesses rush into offshore structuring with the best intentions but with no clear plan for how shareholder participation will work,” says Voges. “When properly executed, an ESS provides a scalable, efficient and fair way to include all shareholders in the offshore journey – not just those with the resources to go it alone.”
ESS – a ticket to ride
For South African businesses that are serious about building globally relevant, future-proof operations, the question is no longer whether, or even when, to expand offshore. It is how to bring everyone along for the ride, and an ESS may well be the answer.
“Sovereign Group always advises business owners to partner with professionals before making any moves and, in this case, the shareholders should be part of the conversation as well,” says Voges. “If you’re looking to take your business offshore with the participation of all its shareholders, contact us to explore how an ESS can unlock inclusive, long-term value for your entire team.”
With over three decades of experience handling cross-border corporate and commercial matters, the Sovereign Group provides the comprehensive advice and support that will assist businesses of all sizes to establish operations successfully in foreign markets. Our solutions will support the long-term growth and sustainability of your business and protect and optimise the interests of all shareholders.
We also provide specialist trustee and administration services to ensure that such arrangements continue to meet the needs of the business and the interests of the beneficiaries. Sovereign is fully licensed to act as a professional trustee in Cyprus, Gibraltar, Guernsey, Hong Kong, the Isle of Man, Malta, Mauritius and Singapore.
