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Employee Shareholder Status

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Employee Shareholder Status – Will you be sharing?

George Osborne wants employees to own the business in which they work. Furthering this agenda is the creation of a new status. The ‘Employee Shareholder’.
The introduction of these reforms has caused much heated debate in Parliament. The Government had to make numerous concessions to get them passed hence the rather convoluted agreement process.

Employment law expert at Brachers Solicitors, Colin Smith explains and asks will this will spark a revolution in employee ownership?

When is this happening?

From 1st September 2013.

What are the benefits for an Employee?

An employee is given (and does not pay for) an amount of shares worth between £2,000 and £50,000. Income tax and national insurance will not be payable on the first £2,000 worth of shares and capital gains tax will not be payable on the first £50,000 of shares when the shares are sold. There is therefore a financial incentive to take on employment under this status.

What are the benefits for the Employer?

The employee gives up some, but importantly not all, of their employment rights.

The main rights conceded are unfair dismissal (but not various forms of automatically unfair dismissal) and the right to a statutory redundancy payment. All existing discrimination laws will still apply as will other laws such as equal pay, working time and health and safety.

How do we agree this?

The Company is obliged to give the individual a written statement. The statement specifies the rights which are given up or amended. It also sets out detailed information on the rights, restrictions and other conditions attached to the shares such as buy back, dividend entitlement and voting rights amongst a very long list.

The individual must take advice from an independent legal advisor before entering into an employee shareholder arrangement and must have a seven-day cooling off period after that advice before the arrangement can take effect.

The employer is obliged to pay the reasonable costs of the lawyer advising whether or not agreement is reached!

Colin Smith concludes:

In our experience so far interest from employers (and of course this only works if you are a company in the first place) has been very limited.

This is unsurprising given the limited benefits for employers (the unfair dismissal protection being given up for example only applies now after 2 years’ service and is soon to be capped at 1 years pay) as compared to the time, effort, complexity and cost of introducing them. Aside from the strict and extensive agreement procedure the idea of introducing new shareholders to any business requires careful planning and review of your corporate structure and putting in place clear rules on wider issues such as voting rights, dividends, buy back rights etc.

The new legal rules are in many aspects unclear. As a result they are also fraught with the risk of becoming an early adopter test case.

For specialised advice on employee shareholders status please contact Brachers on 01622 690691 or email