Quick Reads: Employee Shares

Offering employees shares in a company is often seen as a positive way to incentivise key employees. But it is not without its pitfalls - prior to doing so, strong consideration should be given to how employee shares may affect the company, what the rationale is for offering these, and whether other options (e.g. a well-thought-out bonus scheme) may achieve the same goal without diluting equity.

For example, what rights should the employee shares have - should they be able to vote or just receive a dividend? Do they receive value when the company is sold, and what happens to their shares if they leave before then? Should the employee share rights be equal to the majority shares or sit behind them in some way, e.g. capped capital or restricted dividend rights?

The answer is not straightforward, and the key driver will be the rationale for why you want to offer the employee shares. Exploring the rationale along with other options available should provide you with the tools to balance the protection of your shareholder value on the one hand and incentivising key employees on the other.

And finally, if you are going to offer employee shares, always consider what happens to those shares if the employee leaves (and the treatment may differ depending upon the circumstances of their departure). A properly drafted document in this regard will provide certainty in such an event.

To discuss any of the above further, please contact Philip: philipmiles@bexleybeaumont.com  |  07388 344576