Legal advice on setting up employee share schemes

In 2015-16, the total value of shares and options (pdf) awarded through UK employee share schemes was around £4.3 billion. That is 24% higher than the previous year.

Employee share schemes can provide your company with various financial and motivational benefits, but only if they are tailored to the goals and needs of your business.

Whether you’re looking to reward your employees for years of service, or simply want to make your company a more appealing place to work, it's important that you are fully aware of all the legal implications.

What are employee share schemes?

Employee share schemes can give your workforce the option to purchase shares in your company, bringing a range of motivational benefits to your staff, and certain potential tax benefits to your firm.

Before creating a plan to offer your employees the opportunity to purchase shares, it is important to consider the various different types of scheme that can be set up and how the scheme might help your company achieve its goals.

If the main motivation for creating an employee share scheme is to retain key members of staff, then your share scheme might require a very different approach to one that focuses on sharing the company’s success with a wider pool of employees.

Employee share schemes can also have an impact on any plans you might have to sell or float your business in the future. Solicitors with experience of setting up employee share schemes can advise you on the various implications the scheme you choose will have.

The process begins with a valuation of your shares, and a careful consideration of the various benefits and risks involved in different types of schemes.

What are the benefits of employee share schemes?

Employment share schemes can help to reduce the employment costs of your business by bringing certain advantages relating to income tax and National Insurance contributions. Your scheme may also entitle your business to corporation tax relief.

One of the main reasons employers set up employee share schemes is to motivate and retain staff. Being granted the option to purchase shares can help to align highly skilled members of staff with the company’s goals, and engender a greater sense of interest in the company’s performance.

Share plans can also open up the possibility for cost savings to be made on your company’s wage bill, or by replacing staff bonuses with opportunities to purchase shares.

What are the disadvantages of employee share schemes?

Employee share schemes can present problems when an employee leaves, and it is important to plan for this eventuality so that the company is protected against any potential claims that might be brought by former members of staff.

There can also be difficulties if employee share schemes breed discontent among staff who feel their prospects of salary progress are being jeopardised, or if they feel they are being treated unfairly by being made to stay with the company in order to access benefits.

Employers must be extremely careful when setting up a share scheme to ensure that the plan does not discriminate against any members of staff, and that the opportunity to purchase shares is fair for all employees.

I want to introduce an employee share scheme at my company – what should I do?

You can enlist the help of a specialist corporate law solicitor through First4Lawyers and receive tailored guidance on the legal side of setting up a scheme.

Our legal experts can also help you to put contingency plans in place that protect you in the event of your scheme being wound up, and ensure that your arrangement meets with all the relevant regulatory requirements.

Get in touch with our legal advisors who will review your requirements for free, with no obligation to proceed.