Set up employee share schemes

When actually setting up an employee share scheme, you should consider the following issues:

• Rules and laws - the distribution of shares must abide by certain rules, the company constitution and relevant legislation, eg Companies Act 2006, Financial Services and Markets Act 2000 and the listing rules of the stock market if appropriate.
• Minimum number of shareholders - there must be two or more shareholders forming a company if you want to set up a share scheme.
• Shares must be freely transferable - scheme members should be able to buy and sell between each other.
• Selling restrictions - employees of private companies often have restricted ability to sell their shares. Usually, this involves selling shares to other employees. Even in public companies, employees are sometimes given shares of a class not listed for sale on public exchanges. These are therefore likely to be more difficult to value and/or sell than the listed shares.

You will also have to:

• Draw up a subscriber's contract when you set up a share scheme. This can be very technical so seek expert financial advice.
• Obtain HM Revenue & Customs' approval to operate a tax-advantaged share scheme.
• Explain the employee share ownership system and benefits to your staff and make them aware of the risks associated with investments.
• Since you are operating a financial service, comply with relevant financial services regulations. This shouldn't be an issue for operating and promoting a share scheme, because the legislation contains appropriate exclusions for companies and scheme trustees and exemptions for their promotional material. However, if you propose to run an advisory service for employees, or if your scheme has unusual features - such as shares being held by another investment entity or body - you should take professional legal advice to ensure you don't breach regulations.