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6 September 2013

Employee-shareholder status introduced

With effect from 1 September 2013, a new status of ‘employee-shareholder’ has been introduced, under the provisions of the Growth and Infrastructure Act 2013.

The new status has been introduced following a Government consultation last year.

The new status, which is available to new or existing employees, involves the individual voluntarily surrendering certain employment rights, including the right to claim unfair dismissal or a statutory redundancy payment, in return for a minimum of £2,000 worth of shares in the employer company (or its parent company).  Certain statutory conditions must be satisfied for the new status to be validly implemented.

The Department for Business, Innovation and Skills (BIS) has issued new guidance on employee-shareholder status, detailing the conditions that must be met for the new status to be valid and the employment rights that will be sacrificed.  It also sets out some of the considerations for businesses to take into account when deciding whether to offer this new status.

In addition to the BIS guidance, HMRC has issued separate guidance on the tax treatment of employee-shareholder shares and the process for obtaining a share valuation of employee-shareholder shares.

The new employee-shareholder status was principally intended for fast-growing small and medium-sized companies that would benefit from a flexible workforce.  However, it received a very lukewarm response from business representatives when it was first proposed, and current indications are that very few companies are considering the introduction of the new status.