The Business > Starting up > ‘Employee shareholders’ – what’s the point?
‘Employee shareholders’ – what’s the point? PDF  | Print |  E-mail

September 2013

(Reading time (1-10 minutes): 2minutes

Sophistication level (1 (idiot) – 10 (expert)): 5

Entertainment value (1 (turgid) – 10 (side-splitting)): 5)

 

The new ‘employee shareholder’ status came into effect on 1 September 2013.

I can’t see the point of it.

Basics:

Employees can give away rights to redundancy, unfair dismissal etc in return for at least £2,000-worth of shares

It doesn’t affect other rights such as discrimination

The employee has to give extra notice of early return from maternity leave (16 weeks instead of 8)

Pointless for employees?

  • Given the choice, who is the company going to choose to get rid of later – someone with employment rights or someone without?
  • Waiver of rights not really worth it for most employees for as little as £2,000 of shares?
  • What’s the value of a minority shareholding anyway? How can the employee sell it? Does the company have other arrangements in place to create a market for shares? Or must the employee wait for the controlling shareholders to sell?
  • Does the company pay dividends?
  • Shares can have all sorts of restrictions, eg voting restrictions, forced sales (possibly with ‘bad leaver’ discounts) on leaving (although any valuation must take these into account). The company should ideally have these. The employee should be aware of the implications.

Pointless for the company?

  • Administrative hassle
  • Does the company really want to give away shares? As opposed say to options exercisable if the company is sold?
  • The shares need to be valued. This costs.
  • How is a two-tier workforce going to be helpful?
  • The arrangements need to be signed off by a solicitor acting for the employee. The company has to pay for this, even if the employee decides not to go ahead.
  • Don’t ask me to advise any employees on this (apart possibly as part of a thought out package for senior employees whose contractual rights exceed the statutory protections anyway). I’ll probably advise them not to do it.

Pointless for everyone?

  • No great tax benefits (the first £2,000 is free of income tax and NICs; no CGT on first £50k of a subsequent disposal. May need various elections. Not my area. Ask an accountant). EMI and other employee share option schemes can be better.

 
 
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Andrew James