law 35
Shares in exchange for employment rights
The chancellor has announced a new scheme aiming to boost business growth and retention, which will mean employers could choose to require new employees to enter into the new owner-employee contracts and in return give their workers shares.
Coined an “owner-employee“, under the scheme employees will exchange some of their employment rights for rights of ownership. These will be in the form of shares in the company they work for, and gains on the shares will be exempt from capital gains tax.
With key rights such as flexible working, maternity leave, unfair dismissal and redundancy all potentially affected, Moore Blatch partner Paul Whitaker explains why it is important to know the full facts before offering owner-employee contracts.
“This is an interesting idea from the Government, but it remains to be seen whether this will be popular among small businesses. There are a number of considerations for both employees and employers before any agreements are entered into.
“For example, unfair dismissal rights do not accrue until a person has been employed for two years. A new employee could receive shares for rights they do not have yet, and may never have if they leave before two years.
“Owners of small businesses will want to retain control by holding on to the majority of shares. In contrast, employees may feel that a five or 10% shareholding gives them no control over the company, and therefore is worthless. It would be easy to put a clause in the contract that if the employee leaves for whatever reason they must sell the shares back to the owner, but at what value?
“Any company looking to become involved in this scheme would be advised to have a shareholders agreement, dealing with things like a dividend policy and a mechanism for agreeing a share value when the employee leaves for whatever reason.
“If the company has grown substantially, the employee may receive a windfall. However, it may not be easy for the owner
to raise money to buy the shares and it may starve the company of investment if the owner has to buy shares of outgoing employees.
“Alternatively, if the company has not prospered or the value of the shares are discounted because it is only a minority holding, the shares may be worthless or nearly worthless, in which case the employee will find that they passed up their rights for very little gain.
“There will need to be careful thought given to these issues before the scheme becomes workable, but the danger is that neither employer or employee will consider it worth the risk or the cost of setting up, and that the scheme will not be taken up in large numbers.“
Moore Blatch solicitors offer comprehensive and impartial advice on employment law issues and can provide valuable expertise for businesses considering this new scheme.
Details:
023-8071-8000
www.mooreblatch.com
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Karl Cameron - Professional Negligence Paul Whitaker - Dispute Resolution Dorothy Agnew - Intellectual Property Julian Parkes - Commercial Property
THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – NOVEMBER 2012
www.businessmag.co.uk
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