Shares for non-executive directors—issues and considerations
Shares for non-executive directors—issues and considerations

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

  • Shares for non-executive directors—issues and considerations
  • Meaning of ‘non-executive director’
  • Background
  • Shareholdings and independence
  • Institutional shareholders' guidelines
  • The Investment Association
  • PIRC
  • PLSA (formerly NAPF)
  • Company law and financial services requirements and tax efficient plans—implications of not being an employee
  • Employees’ share schemes—Companies Act 2006 definition
  • More...

Shares for non-executive directors—issues and considerations

Meaning of ‘non-executive director’

The general definition of ‘director’ is not exhaustive. The Companies Act 2006 (CA 2006) provides that the term director includes any person occupying the position of director, by whatever name called. Thus, it includes both executive and non-executive directors (NEDs).

Executive directors are generally authorised, either by the company’s constitution or by devolved authority from the board, to carry out the day-to-day operation of the company. As such they usually have a full time service contract.

NEDs generally:

  1. have no executive authority

  2. play a critical part in the corporate governance of the company, and

  3. are not employees of the company

There are many complications relating to the provision of shares to NEDs. This Practice Note looks at the issues which should be considered when providing shares or share-based reward to NEDs, including:

  1. the potential effect on the independent status of the NED

  2. the share dealing provisions of Retained Regulation (EU) 596/2014 for the UK, Market Abuse Regulation (Regulation (EU) 596/2014 previously and for the EU)

  3. pre-emption rights contained in CA 2006 and the Listing Rules, and

  4. financial assistance requirements

This Practice Note also examines the corporate governance guidelines relating to remunerating NEDs, the disclosure requirements relating to NEDs and the effect of a NEDs participation in a pre-existing share plan on such plans' qualification as an employees' share plan pursuant

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