With effect from 1 September 2013, the Government introduced a new employment status, referred to as Employee Shareholder Status. This is a tax efficient way for employees to share in the growth and success of their employers.

Individuals accepting employee shareholder status will give up certain employment rights in return for shares in their employer or its parent company which are exempt from capital gains tax (CGT).

Under the terms of an employee shareholder agreement, an employee shareholder will be required to give up their statutory rights in relation to:

  • unfair dismissal
  • a statutory redundancy payment
  • requesting flexible working
  • time off for training

Employee shareholders will also be subject to stricter maternity and other family rights.

An employee shareholder’s right to claim automatically for unfair dismissal (e.g. in relation to whistleblowing) or under the Equality Act 2010 for discrimination is not affected.

The legal requirements regarding this new employment status are relatively complex and there are strict rules regarding how employee shareholder status should be implemented.

These rules include a requirement that those individuals receive independent legal advice at the company’s expense.  The employer must meet the reasonable costs incurred by the employee in receiving this advice, regardless of whether the individual actually becomes an employee shareholder or not.

As such, it is vital for companies and prospective employee shareholders alike that the relevant corporate, tax and employment law requirements are complied with to avoid complex and costly problems later on.

If you are considering employee shareholder status, we can advise you on the implications and assist in any negotiation of the terms of an employee shareholder agreement, whether a company or an individual.