Business Accountant

Home » Posts tagged 'Ownership'

Tag Archives: Ownership

Employee Shareholders – will your employees want shares?

Successful Businessman With A Contract In Hand

The Growth and Infrastructure Act 2013 comes into force on 1st September 2013 and Section 31 makes changes to the Employment Rights Act 1996 inserting section 205A Employee Shareholders.

205A Employee shareholders
(1) An individual who is or becomes an employee of a company is an “employee shareholder” if—
(a) the company and the individual agree that the individual is to be an employee shareholder,
(b) in consideration of that agreement, the company issues or allots to the individual fully paid up shares in the company, or procures the issue or allotment to the individual of fully paid up shares in its parent undertaking, which have a value, on the day of issue or allotment, of no less than £2,000,
(c) the company gives the individual a written statement of the particulars of the status of employee shareholder and of the rights which attach to the shares referred to in paragraph (b) (“the employee shares”) (see subsection (5)), and (d) the individual gives no consideration other than by entering into the agreement.
(2) An employee who is an employee shareholder does not have—
(a) the right to make an application under section 63D (request to undertake study or training),
(b) the right to make an application under section 80F (request for flexible working),
(c) the right under section 94 not to be unfairly dismissed, or
(d) the right under section 135 to a redundancy payment.

Giving up employment rights might not sound like a good idea for employees but there are tax advantages for both the employee and employer:

  1. Dividends are not subject to PAYE or National Insurance
  2. Dividends would not be used as Pay in Auto Enrolment
  3. Capital Gains Tax Allowances should make most gains tax free
  4. The employer will benefit from cost savings on the sacrificed employment rights

 

steve@bicknells.net

Why have multiple classes of shares?

Successful Businessman With A Contract In Hand

Businesses tend to start off just having ordinary shares with full voting and dividend rights, however, there are lots of good reasons why you might create multiple share classes:

 

1. To reward the owners based on their contribution – for example say one owner worked full time and the other only part time – they may want dividends to be based on their efforts whilst still retaining their original voting rights

 

2. To offer non voting shares to employees

 

3. Convertable or Redeemable shares might be offered to an investor

 

4. Preference Shares might have a fixed dividend

 

Dividends are very tax efficient so its great way to reward the owners for the risk of running a business.

 

Always seek professional advice before making changes to check for capital gains, settlement and other tax and legal issues, better safe than sorry.

Then before creating additional share classes check your articles of association and change them if necessary, then you will need a resolution to create new share classes, fill the appropriate forms at Companies House and then you are ready to go.

 

 

steve@bicknells.net

%d bloggers like this: