The government’s Employee Shareholder Scheme came into force yesterday.
The scheme, also known as shares for rights, was passed in Parliament after the government made several concessions to its original proposals.
The legislation will enable staff to swap some of their employment rights, including unfair dismissal and redundancy rights, for shares in their organisation worth between £2,000 and £50,000.
However, Sarah Ozanne, employment partner at CMS Cameron McKenna, questioned the scheme’s likely popularity “It is questionable whether the shares for rights scheme will garner much popularity with employers or employees,” she said.
“While some employers and employees may see it as a practical route to share ownership, many are likely to be put off by the complexities of share valuation, the costs to employers of implementing the scheme and the forfeiture of what many employees view as core employment rights.”
Jonathan Exten-Wright, partner in the employment, pensions and benefits team at DLA Piper, added: “The tax and employment law obligations are surprisingly more complex than might first appear when revisiting the legislation.
“There are also issues surrounding how articles of association of relevant companies permit the issue of such shares which will need to be addressed in each instance.
“Matters are not quite so straightforward, but clearly the goal of increased shareholder status among employees and/or the potential tax efficiencies will invite people to address these issues.”
A spokesperson for Department for Business, Innovation and Skills said: “It is up to individual companies to ensure any shares they issue have been valued. Professionals such as accountants or actuaries will normally value shares. Companies may also apply to HM Revenue and Customs in advance of an award, or at the time of award, to agree a valuation of the shares for tax purposes.
“If the person is not issued with shares with a value of at least £2,000, the criteria for the employee shareholder status would not be fulfilled, and the person could be found to be an employee by an employment tribunal, and be entitled to the associated rights of an employee.
“Issuing new shares to minority shareholders will have implications for companies. The government guidance is clear that before offering employee shareholder contracts current shareholders should consider the wider implications on their shareholdings.”