Introduction to employee share ownership schemes
Introduction to employee share ownership schemes

The following Share Incentives guidance note provides comprehensive and up to date legal information covering:

  • Introduction to employee share ownership schemes
  • Why do companies have employee ownership?
  • Types of share ownership schemes
  • Issues to consider when implementing a share scheme

This Practice Note provides an introduction to:

  1. why companies have employee ownership models

  2. the main types of share ownership models, and

  3. issues to consider when implementing a share scheme

For a more detailed analysis into why companies use share schemes, see Practice Note: Why do companies use share schemes?

Why do companies have employee ownership?

Employee ownership typically happens in one of the following scenarios:

  1. business succession or ownership succession—private owners, such as an entrepreneur or family business, decide to sell all, or, usually, part of their share holdings to their workforce

  2. insolvency or closure threat—employee buyouts can prove an effective route to recovery for businesses that might otherwise fail

  3. independence—companies may decide that a significant and even majority employee stakeholding will demonstrate and help protect the company's independence

  4. privatisation—the privatisation of various companies have provided occasional opportunities for employee buyouts, and

  5. owner vision and incentivisation—as in the case of John Lewis or Arup Group, at the outset of the business or later on, the founder of a business opts for employee ownership. Alternatively, a smaller proportion of the equity in the business is made available to some or all employees in order to give them a stake in the business, incentivising them to stay and focus on corporate performance, and give them a