MALTA Law and Practice Contributed by: Dr Josef Cachia Fenech Gonzi and Cherise Abela Grech, GTG Legal
EUR10 Million Fund to Support Innovative Start-ups A VC scheme has been introduced by the Mal - tese government to assist new companies which find it difficult to receive bank loans due to risk factors. Eligible companies may include those involved in video game development, fintech, e-sports, life sciences, pharma, green energy, the filming industry, agritech, AI, communica - tions, electronics, financial services, medical devices, software, blue-water industries and digital technology. In Malta, founders’ and key employees’ long- term commitment to a venture is typically secured through a combination of equity-based incentives, contractual provisions and retention- focused remuneration schemes. One common method is the issuance of shares, often accom - panied by specific provisions in the company’s MAA or a private shareholders’ agreement, the provisions of which would typically supersede those of the MAA. Notably, the latter is only bind - ing if all shareholders are parties to the agree - ment. 5. Employment Incentives 5.1 General Vesting provisions are frequently incorporated to ensure retention, with shares being allocated over a predetermined period or upon meeting performance milestones. These provisions often include clawback mechanisms, allowing the company to reclaim shares if the founder or key employee leaves before the vesting period ends. Employee Share Option Plans (ESOPs) and free bonus share schemes are also popular, often structured with multi-year vesting to promote long-term alignment with the company’s growth.
Tax considerations play a crucial role in struc - turing these schemes. Malta’s fringe benefit tax rules apply to share option and free share schemes, impacting the overall benefit received by employees. Additionally, cash-based or phan - tom share plans offer alternatives to direct equi - ty participation, enabling employees to benefit from the company’s success without acquiring actual shares. These arrangements may come with distinct tax implications that need to be carefully assessed. In the case of listed entities, the requirement to obtain prior written authorisation from the Malta Financial Services Authority before offering such schemes has been recently removed, simplifying the process and encouraging broader adoption of equity-based incentives. Beyond equity incentives, companies may offer cash-based retention bonuses, more favourable employment terms or a percentage of profits without issuing shares. Employment agreements often include anti-competition clauses to protect the company’s interests post-employment. How - ever, the enforceability of such clauses is subject to Maltese court rulings, which underscore the need for carefully balanced terms. Additionally, “garden leave” clauses may be used to restrict departing employees from engaging with com - petitors during their notice period while still receiving compensation. Overall, a combination of these strategies helps align the interests of founders and key employ - ees with the long-term success of the venture, ensuring stability and commitment while balanc - ing legal, tax and commercial considerations. 5.2 Securities Companies in Malta commonly use shares, including share option schemes and free share
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