Employee share buy-back rule relaxed

Business Comments Off on Employee share buy-back rule relaxed

Evidence suggests that employee-owned businesses – those in which members of staff own a stake (often in the form of shares) in the business – are likely to show increased productivity and, as a result, increased profitability compared with those that do not.

According to research conducted by the Cass Business School in 2010, employee-owned businesses (EoBs):

  • with fewer than 75 employees are more profitable on a profits-before-tax basis than non-EoBs
  • experience greater, and faster, employment growth than non-EoBs
  • experience a significantly higher annual sales growth of 11.08 per cent on average, compared with 0.61 per cent.

To promote the benefits and encourage take-up of the employee-ownership model, the Government is simplifying the rules for businesses wishing to buy back employee-owned shares when employees leave the business.

These changes to the Companies Act 2006 came into force on 30 April 2013 and aim to reduce the regulatory burden of share buy-back on businesses. The new rules will allow:

  • shareholders to approve off-market share buy-backs by a simple majority, instead of by the previous three quarters approval rule
  • for a greater range of financing options for share buy-backs
  • companies to hold bought-back shares ‘in treasury’ so that they can be easily reissued to new employees or scheme joiners
  • advance approval of employee share buy-backs by shareholders, rather than on a case-by-case basis.

Employment relations and consumer minister Jo Swinson said that hundreds of businesses stand to benefit from the reforms.

Have you considered employee-share schemes as a way to incentivise employees and boost your business? Talk to John Elliott, Tax Partner to find out more.