All things you need to know about Employee Shareholders:

Employee shareholder is an employment status. Employee shareholders are those who work under employee shareholder employment contracts. 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 shareholders job?

  • Anyone can apply for or accept an employee shareholder job. And you do not have to apply for or accept 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 certain conditions. What are they?

  • 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. 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.
  • When a company offers an individual or an existing employee a shareholder job, they must provide a written statement of the particulars of the status of the employee shareholder.
  • Once the individual or existing employee receives an employee shareholder job and the written statement, the individual must get independent advice on the terms and effect of that specific job offer.
  • 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.
  • 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 for example:

  • The employment rights that an employee stockholder does not have.
  • Whether any of the shares being offered have any voting rights linked to them.
  • And also whether the shares carry any rights to dividends.
  • Whether the 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. Consider 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, whether these shares are 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 shareholders.

  • The potential employee shareholder has a responsibility and a right to find a relevant independent advisor.
  • 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.
  • For employment advice or commercial contracts, contact help@bizlawuk.co.uk or WhatsApp us on 07583452230 and we can connect you to the right employment law professional. Visit https://www.bizlawuk.co.uk to find out more about how we can help you with our other business services, check our 5-star testimonials and watch our YouTube channel or listen to our podcasts. If you find this information useful, please follow our social media platforms, like, and share.

     

    Reina D'costa

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