Employee shareholder status is a unique employment arrangement that allows employees to own shares in the company they work for. This arrangement can offer numerous benefits to both the employee and the employer, including increased employee engagement, improved company performance, and potential tax advantages. However, it also comes with its own set of complexities and potential pitfalls. This guide aims to answer some of the most frequently asked questions about employee shareholder shares and agreements, providing valuable insights for both employers and employees considering this type of arrangement.
What is Employee Shareholder Status?
Employee shareholder status is a type of employment status that was introduced in the UK in 2013. Under this arrangement, an employee gives up certain employment rights in exchange for a minimum of £2,000 worth of shares in their employer’s company. The shares can be worth up to £50,000 at the time they are awarded, and any growth in the value of the shares is exempt from capital gains tax.
What is an Employee Shareholder Agreement?
An employee shareholder agreement is a legal contract between an employer and an employee that outlines the terms and conditions of the employee’s shareholder status. This agreement typically includes details about the number and value of the shares being awarded, the rights and responsibilities of the employee as a shareholder, and the circumstances under which the shares can be sold or transferred.
What are the Benefits of Employee Shareholder Status?
There are several potential benefits to employee shareholder status for both employers and employees:
- Increased Employee Engagement: When employees own a stake in the company, they may feel more invested in its success and more motivated to perform well.
- Improved Company Performance: Research has shown that companies with employee shareholders often outperform those without.
- Tax Advantages: In the UK, growth in the value of employee shareholder shares is exempt from capital gains tax.
What are the Drawbacks of Employee Shareholder Status?
Despite the potential benefits, there are also several potential drawbacks to employee shareholder status:
- Loss of Employment Rights: In exchange for receiving shares, employees must give up certain employment rights, such as the right to claim unfair dismissal or redundancy pay.
- Financial Risk: If the company does not perform well, the value of the shares may decrease or become worthless.
- Complexity: Employee shareholder agreements can be complex and difficult to understand, particularly for employees without a background in finance or law.
How are Employee Shareholder Shares Valued?
The value of employee shareholder shares is typically determined by a professional valuation at the time the shares are awarded. The valuation must be fair and reasonable, and it must take into account factors such as the company’s financial performance, its assets and liabilities, and the market conditions at the time.
Can Employee Shareholder Shares be Sold or Transferred?
The terms and conditions for selling or transferring employee shareholder shares are typically outlined in the employee shareholder agreement. In some cases, the shares may be sold or transferred freely. In other cases, there may be restrictions on when and to whom the shares can be sold or transferred.
What Happens to Employee Shareholder Shares if the Employee Leaves the Company?
What happens to employee shareholder shares when an employee leaves the company depends on the terms of the employee shareholder agreement. In some cases, the employee may be required to sell the shares back to the company. In other cases, the employee may be able to keep the shares or sell them to a third party.
Conclusion
Employee shareholder status can offer numerous benefits, but it also comes with its own set of complexities and potential pitfalls. Both employers and employees considering this type of arrangement should carefully consider the potential benefits and drawbacks, and they should seek professional advice to ensure they fully understand the terms and conditions of the employee shareholder agreement.
