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Employee Shareholders – Gets the go ahead

16th May 2013

After a considerable amount of ping pong between the House of Commons and the House of Lords, the Government’s controversial proposal for businesses to offer employees shares in exchange for giving up certain employment rights is now set to become law this September.

The House of Lords finally voted to accept the proposal after the Government made a number of concessions, namely:

  • Employees must receive independent legal advice before agreeing to become an employee shareholder
  • There will be a seven day ‘cooling off’ period before any employee shareholder agreement becomes binding
  • Employers must provide a written statement with full details about the share entitlement
  • Any jobseeker who refuses an offer with employee shareholder status will not lose their social security benefits
  • The first £2,000 shares will not attract income tax
  • Existing employees will be protected from detriment if they refuse to switch to an employee shareholder agreement.

Many thought the Government’s proposal wouldn’t see the light of day because of all the negative comments hurled at it both before and during its passage through parliament. It managed to get it through only by making these concessions which now add a further layer of administration to a scheme that had been already been criticised for being impractical and burdensome. The Government pressed ahead with the new legislation because it believed it would boost economic growth and give greater flexibility to small and medium sized businesses. However, the business response suggests that the biggest take up of the scheme may come from employers who have senior executives with a hefty equity component in their remuneration package who will want to utilise the capital gains tax exemption.

The contents of this update are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this update. © Mundays LLP 2013.

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