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Retail e-briefing: Employee shareholder status coming into force on the 1 September 2013

    • Retail - E-briefings


    From the 1 September 2013, it is possible for a company and an employee to agree that that employee is an “employee shareholder”.

    What’s changing?

    Existing and new employees can agree (having taken legal advice and following a set procedure) with their employer that in return for giving up certain employment rights they will get shares in the company and become an “employee shareholder”.

    What rights do employees have to give up?

    • Right to claim for unfair dismissal in most circumstances
    • Right to statutory redundancy payment
    • Right to request flexible working
    • Right to request to undertake study or training

    There are also some changes around lengthening maternity and paternity notice periods.

    What shares do employees receive?

    The shares must be worth at least £2,000 when issued and be issued fully paid for no consideration other than the giving up of the specified employment rights. The shares can have whatever rights attached to them as are agreed between the company and the employee and as set out in the company’s articles. The employee must also be given a statement setting out the rights including their rights (if any) to dividends, voting and distribution of assets on a winding up.

    What are the benefits to employees (over and above simple share ownership)?

    Broadly the benefits are tax related and in simple terms the first £2,000 worth of shares can be received free from income tax and national insurance (otherwise they'll be taxed in the normal way) and the employee can sell up to £50,000 of the shares free of capital gains tax. This is a very general statement and detailed and specific tax advice must always be taken. In particular, note that one of the conditions for the various tax exemptions to apply is that the proposed employee shareholder cannot have an “material interest” in the company when the shares are acquired (or the previous 12 months) so specialist advice will always be required.

    Who is likely to take this up?

    The initial commentary has been fairly negative. However, we believe that it will be used by high growth companies, where gains are most likely, in the private equity context or where individual employees are less concerned about the rights they are giving up.

    If you would like to discuss the implications of this article for your retail business please Michelle T Davies or Matthew Gorringe.

    For more information contact

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