Set up employee share schemes

Set up a share scheme

Clear guidelines and regulations govern the issue of shares:

• Issue a prospectus - if you want to offer shares to employees - outlining the financial situation of the business.
• The distribution of shares must abide by certain rules, the company constitution and relevant legislation, eg Companies Act, Financial Services and Markets Act and the listing rules of the stock market if appropriate.
• There must be two or more members forming a company if you want to set up a scheme.
• Shares must be freely transferable between members - scheme members should be able to buy and sell between each other.
• Employees of private companies often have restricted ability to sell their shares. Usually, this involves selling to other employees. Even in public companies, employees are sometimes given shares of a class not listed for sale on public exchanges. These are therefore likely to be more difficult to value and/or sell than the listed shares.
• Draw up a subscriber's contract when you set up a scheme. This can be very technical so talk to a solicitor or specialist adviser.
• Obtain HM Revenue & Customs approval to operate a tax-advantaged scheme.
• Explain the employee share ownership system and benefits to your staff and make them aware of the risks associated with investments.
• Since you are operating a financial service, you must comply with applicable financial services regulations. This shouldn't be an issue as regards operating and promoting a scheme, because the legislation contains appropriate exclusions for companies and scheme trustees and exemptions for their promotional material. But if you propose to run an advisory service for employees, or if your scheme has unusual features - such as shares being held by another investment entity or body, you should take professional legal advice to ensure you don't breach regulations.

IfsProShare is an independent not-for-profit organisation that offers advice you on setting up share schemes. It also provides a forum for small companies to exchange ideas and information about employee share ownership plans. See the step-by-step guides on implementing employee share schemes on the ProShare website .

Subjects covered in this guide

• Introduction
• Defining share option and share award schemes
• Employee share ownership - for employers
• Employee share ownership - for employees
• Different schemes - an overview
• HM Revenue & Customs-approved schemes: CSOP and EMI
• HM Revenue & Customs-approved schemes: SIP and Save As You Earn
• Taxed employee share schemes - taxed, phantom and long-term incentive share plans
• Taxed employee share schemes - restricted, convertible and benefit trusts
• Choosing the best share scheme for your business
• Set up a share scheme
• Here's how I set up a successful employee share scheme

 

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