Direct Employee Ownership

Employees are individual owners of shares in their company, often using one or more of the tax-efficient share schemes that are available.

Employees own their own shares and therefore financial rewards such as dividends are directly linked to the success of the company, that they have helped generate. In addition, direct shareholders usually have voting rights under the governance structure of the organisation and can access information on how the business is performing. Reward schemes for individual employees, such as annual bonuses, sit comfortably alongside this type of employee ownership.

Employees usually acquire shares in their business in one of the following ways:

  • PURCHASING SHARES: Employees buy shares in the company in which they work, sometimes via a tax-efficient Share Incentive Plan (‘SIP’).
  • FREE SHARES: Employees may be gifted shares, often through a Shareholder Incentive Plan (‘SIP’). Gifts of shares can be linked to the performance of the business.
  • MATCHING SHARES: If employees buy shares, the company may choose to match these, for example on a one-to-one basis, (BOGOF).
  • SHARE OPTIONS: Employees are awarded share options, often via an HMRC approved scheme which allows them to purchase shares through the exercise of options.

If direct share ownership is an option for your business, consider these points:

  • Would employees want to buy shares?

  • Would the company make a repayable loan for staff to buy the shares?

  • Does the company wish to and can it afford to match employee share purchases or to give free shares?

  • How might the shares be acquired from the current owners, over what timescale and at what price?

  • Is the company able to operate an internal share market to enable staff to buy and sell shares, or would you be better getting an external party to operate this or you?

  • Can the company afford to purchase shares from those who wish to sell them if there are no other internal buyers?

  • How will the company report financial performance to employee shareholders?

  • Will employees have to meet certain eligibility criteria before they are invited to become shareholders? E.g. be employed for a minimum of time

  • What are the tax implications of this model of ownership for both company and employees?

Indirect OwnershipHybrid Ownership