Springhouse Solicitors

Employee shareholders – all you really need to know

Employers can now offer shares to their staff, in exchange for certain legal rights.

  1. Employee shareholders will have fewer rights than normal employees. They will not have any rights to redundancy payments or unfair dismissal. They will have no rights to request time off for study or training, or to request flexible working time because of their parental responsibilities. They will have to give much longer notice on return from time off for being a parent.
  2. In exchange, they must be given shares in the company of £2,000 – £50,000.Setting the value of shares at £2,000 involves working out what the business might reasonably be expected to fetch on the open market, and this might be difficult. Get it wrong, and the agreement may not be valid. The allotment of shares must be the only reason for the agreement to become an employee shareholder.
  3. You can force new – but not existing – employees to be employee shareholders. You should not subject existing employees to worse treatment because they have refused to accept an offer to become an employee shareholder, but you can turn job applications away for this reason.
  4. There are some serious hoops to jump through to get a scheme in place. Prospective employee shareholders must be given a written statement setting out in detail what employment rights they are giving away, and exactly what type of shares they will be getting (for instance, details about voting rights, rights to dividends, restrictions on sale etc). They must also have been given legal advice as to the terms and effect of the proposed agreement at least 7 days before they sign it. Any costs incurred must be paid for by the company.
  5. There are tax benefits. Any shares allotted under the scheme (£2,000 – £50,000) will be capital gains tax free. Any shares over £2,000 in value are subject to income tax, however.
  6. So, who will the scheme suit? The new scheme will be attractive to people involved in smaller businesses of the right size, where the 2,000 – 50,000 value represents a percentage of ownership of the right order. In fast growing businesses of the right size, the capital gains tax break could be very attractive to potential employees whom the business otherwise would not be able to afford. The amount of paperwork involved is a down side for employers, however, and there are already many other tax efficient share ownership schemes available which may be more attractive.