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Everything you need to know about Employee Shareholders

  • Employee shareholder is an employment status. An employee shareholder is someone who works under an employee shareholder employment contract. Your company must give, or as an employee shareholder you must receive, shares in the employer’s company or employer’s parent company. These shares must have a minimum value of £2,000 on receipt. There is no set upper value.

Who can apply for/ accept an employee shareholder job?

  • However , anyone can apply for or accept an employee shareholder job. And you do not have to apply for or accept an this job if you do not want to. If you are a Jobseeker’s Allowance claimant and do not want to apply for an employee shareholder job, you do not have to.
  • If you are already an existing employee working in a company, your employer may ask you to change your employment contract to that of an employee shareholder. You must still go through the same process outlined in this guidance. You don’t have to change your contract of employment if you don’t wish to. If you are currently an employee and your employer dismisses you or subjects you to any detriment because you did not accept the offer of this contract, you may present a complaint to an employment tribunal.

Employee shareholders must meet six conditions. What are they?

  • Employee shareholders must satisfy six conditions – whether they are new hires or existing employees. The employer and the individual shared responsibility to meet these conditions.
    • The individual and the company must both agree that the individual will be an employee shareholder.
    • The employer must give the individual fully paid-up shares in the employer’s company or employer’s parent company, and they must be worth at least £2,000.
    • However, the individual must not pay for the shares in any way.
    • Then employer must give the individual a written statement of the particulars of the status of employee shareholder.
    • The individual must get advice from a relevant independent adviser on the terms and effect of the written statement. Even if the individual does not accept the job, the company has to pay for the advice.
    • The individual cannot accept or agree to an employee shareholder job until 7 days have passed following receipt of the advice.After receiving advice, the 7-day period begins. If the individual or the company do not undertake or keep to all 6 of these conditions, the individual will not be an employee shareholder.

What are the employment rights of an employee shareholder?

An employee shareholder has the following rights:

  • Statutory sick pay
  • Statutory maternity, paternity and adoption leave and pay
  • When they are classified as automatically unjust reasons, when dismissal is based on discriminatory grounds, and when it is related to health and safety, unfair dismissal rights apply.
  • Minimum notice periods if their employment will be ending (eg if an employer is dismissing them).
  • Time off for emergencies.
  • Collective redundancy consultation.
  • TUPE.
  • National minimum wage.
  • Not to have unlawful deductions from wages.
  • Paid annual leave.
  • Certainly, working part time or on a fixed term basis does not entitle you to preferential treatment.
  • Being discriminated against is prohibited.
  • In addition to knowing the rights and privileges that an employee shareholder does not have, the declaration must also include the facts about those rights and privileges. These are:
    • Unfair dismissal rights (apart from the automatically unfair reasons, where dismissal is based on discriminatory grounds and in relation to health and safety).
    • Rights to statutory redundancy pay.
    • The statutory right to request flexible working except in the 2-week period after a return from parental leave.
    • Certain statutory rights to request time off to train.

Notice period

  • In addition, an employee shareholder will have to give 16 weeks’ notice to their employer if they intend to return early from maternity, extra paternity, or adoption leave. An employer can choose to offer contractual rights that are more generous than those provided for in the statute.
  • There is a compulsory sequence of actions that must take place before an individual can accept or refuse an offer of employment as an employee shareholder. In the absence of these actions, or in the wrong order, the individual cannot be an employee shareholder.
    1. When a company offers an individual or an existing employee an employee shareholder job, they must provide a written statement of the particulars of the status of employee shareholder.
    2. Once the individual or existing employee has received the offer of the employee shareholder job and the written statement, that individual must get independent advice on the terms and effect of that specific job offer.
    3. The individual must take 7 calendar days to consider the independent advice received and whether they wish to accept or refuse the employee shareholder job. The 7 days begin on the day after the independent advice is received.
    4. The contract will only have legal effect as an employee shareholder contract after the 7 days have passed.

What to include in the written statement?

The written statement must include:

  • The employment rights that an Employee stockholder does not have.
  • Undoubtedly, the shareholder must give a minimum of 16 weeks’ notice of an early return from maternity, extra paternity, or adoption leave.
  • Whether any of the shares being offered have any voting rights linked to them.
  • Whether the shares carry any rights to dividends.
  • Do shares confer any rights to any remaining assets of the company in the event the company is wound up.
  • If the company has more than 1 class of shares, and any voting or dividend rights. Explain how those rights differ from the equivalent rights that attach to the shares in the largest class; Hence, the next largest class will be used when the shares already belong to the biggest. Whether the shares are redeemable and if they are, at whose option.
  • If there are any restrictions on the transferability of the shares and what those restrictions are.
  • If any pre-emption rights apply to the employee stockholders’ shares.
  • Finally, these are the shares subject to drag-along or tag-along rights, and if they are, explain what that means.

Drag-along and tag-along rules relate to minority shareholders, and whether they would have to sell their shares if:

  • Majority shareholders have agreed to sell.
  • Minority shareholders need the majority shareholders to get the same offer to sell their shares if the majority are selling.

In addition to the above, the company may also provide other useful information.

Relevant Independent Advice for employee shareholder.

  • The potential employee shareholder has a responsibility and a right to find a relevant independent advisor.

Independent advice can be given by:

  • A qualified lawyer
  • A member or officer of a trade union whose certification stipulates they are qualified to give that advice.
  • Any person working in an advice center who has been certified by that facility to provide such advice.
  • Currently, this would be an Institute of Executives fellow employed by a law firm who is authorised to give legal advice by the Secretary of State.
  • An employee shareholder employment contract will not take legal effect if an individual does not get independent advice. Individuals should understand the employee shareholder contract and its implications before accepting a job. Even if the individual refused to get independent advice after hearing this, he or she should not be offered the employee shareholder agreement.
  • Employers must not use their in-house lawyers or lawyers who have previously worked for the company. The advice must be independent.
  • The company must pay the reasonable costs of obtaining independent advice. The employer and individual should clarify what that would be at the outset. As with new hires, the company must pay for the advice regardless of whether the position is accepted or not.

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Reina D'costa

Dual qualified, experienced, practical and proactive solicitor. Founder of Bizlaw UK, a new model legal service consultancy.