The government has recently announced plans to promote employee ownership of businesses. For employees, the ability to participate in the equity of a business can be an important part of their reward package.
For private companies the two most efficient methods of giving equity stakes to employees are Enterprise Management Incentives (EMI) scheme; and an outright transfer of shares (including partly paid shares). But in considering whether to implement such schemes, businesses should also give thought to the potential downside.
Depending on the type of scheme, where ownership schemes are implemented there will be particular issues that arise on leaving the business, such as potential disputes surrounding ‘good and bad leaver’ provisions where the amount (if any) which is paid for a shareholding, and the right or obligation to sell it, depends on the circumstances of departure. Similarly, it is common for share options to vest over time with unvested options at the time of leaving the company lapsing.
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