Employee Ownership & Share Schemes FAQs

An employee ownership trust (EOT) is a form of employee benefit trust with two tax reliefs.  Company owners selling more than 50% ownership to an EOT will be exempt from capital gains tax, and a company more than 50% owned by an EOT can pay its employees income tax-free bonuses

There are a number of compelling reasons why you may consider setting up an employee ownership trust (EOT).

Employee ownership is proven to create more resilient and adaptable businesses with loyal and more productive employees.

If you are a private company owner wishing to retire but looking for an alternative to a trade sale, or a company founder keen to share the rewards of business ownership from the start, an EOT may be the answer.

Please see our employee ownership page for more information.

An employee benefit trust is an arrangement under which assets (usually shares or cash) are held in a trust and so ringfenced for the benefit of a company’s employees.  Commonly a key part of the structure of an employee-owned company, normally as a more specific employee ownership trust

You might set up an employee benefit trust to buy shares from employee shareholders and recycle them back to other employees, or as part of an ownership succession plan (normally then an employee ownership trust), or to create a long term pool of shares held for the benefit of employees.

A trust can sometimes be useful as a warehouse for a company’s shares where it wishes to operate an internal share market or arrange for the purchase of shares from a departing employee. In other cases, including where the chosen share scheme is a SIP or where an employee owned company is being created, an employee trust (or employee ownership trust or EOT) may be an important component in your share scheme.  Whilst trusts can play a very useful role in the operation of an employee share scheme, anti-avoidance legislation means that care is needed in the use of a trust (or any third party) to provide shares or other forms of benefit to any employees.

An employee-owned company is one that is wholly or substantially owned by all its employees. Ownership can be direct (all employees hold shares), indirect (shares are held by an employee ownership trust) or a mix of the two.

More details can be found here Employee ownership

There is a variety of independent research showing a strong positive connection between employee share ownership and improved company performance. Researchers have looked at different degrees of employee ownership and at particular types of employee share scheme.  We have put together a summary of findings of some of the research which provides more background

Please take a look at our Employee Share Schemes page

The priority for many companies is to create a share scheme for their key people. Others take the view that expanding share ownership more widely will have a greater positive impact. Your own approach is likely to depend on your business, the profile of your employees and how many shares are available for use in your share scheme.

An all-employee scheme is likely to need more administration, although, if you wish, this can be outsourced

For more details look here Employee Share Schemes

Yes, in the UK there are tax incentives for both a company and its employees, although a share scheme will need to meet some precise requirements to secure income tax reliefs. Tax incentives might also be available in jurisdictions outside the UK

For more details look at Employee Share Schemes

Yes, the only difference is that in the UK we tend to use the phrase employee share scheme whereas in the USA and Canada the preferred term is employee share plan. Other terms with the same or similar meanings are included in our Glossary

We will tell you if this is needed or advisable.

We will tell you if this is needed or advisable. In some cases your client will need its shareholders to approve the launch of a new share scheme but it won’t always be necessary.

An Enterprise Management Incentive (EMI) option scheme is a way of rewarding selected employees for performance and loyalty by giving them the right to acquire shares in their company from a future date at a fixed price. The more those shares subsequently grow in value, the greater the employee’s gain through buying at a price below value at time of purchase. Employee’s reward is taxed at a significantly lower rate compared with bonuses or other cash rewards.

A Share Incentive Plan (SIP) is an employee share scheme under which employees may acquire shares in their company, with tax reliefs.  They enjoy relief against income tax and NI to purchase shares and/or receive free shares without being taxed on their value.   All employees must be allowed to participate.

The main ways for an employee to acquire shares in their company are

1.  purchase
2.  free shares; or
3.  options to acquire shares in the future.

In the UK, a number of statutory tax incentives help reduce the financial cost to employees of acquiring shares.

Employee share schemes

If your company’s shareholders are working towards an exit (sale or flotation), that could be made the target for when employees can sell their shares. If your client has no specific exit plans, it may need to consider arrangements allowing employees to sell their shares through an internal share market.

For an employee share scheme, a typical time for a private company is between two and three months. But this may be longer if, for example, you are a listed company and need shareholder approval.

For an employee ownership trust, the minimum time period is generally three months but it is important to take sufficient time to ensure that everyone in the company is clear and comfortable with the changes involved.

If you choose us, you will be entrusting the design and setting up of your client’s company’s share scheme or employee ownership transaction to acknowledged specialists.  We have the experience to help you create a plan which aligns with your commercial and people objectives and to ensure compliance with all the relevant company law, employment law and taxation issues that may apply.  We pride ourselves on delivering a client-friendly and personal service and our ability to demystify the issues, which we believe our testimonials demonstrate.  But we think you’ll want to talk to us to decide for yourself, so do please contact us if you would like to arrange a meeting or to discuss the situation by telephone or email.

Unsure what a term means, this should help Glossary