Move to let staff swap rights for shares could boost SMEs

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RULES on employee ownership coming into effect tomorrow could help small businesses attract key recruits from bigger companies, according to a lawyer.

Under the change in legislation, workers will be able to take equity stakes in their companies free from capital gains tax in return for giving up certain employment rights, such as to a statutory redundancy payment. Employees will be able to exchange rights for shares worth at least £2,000 in their employer, with the first £50,000 of shares issued exempt from tax.

Jacqueline McCluskey, a partner in HBJ Gateley’s employment team, said the change could help high-growth SMEs and start-up companies recruit key staff.

“They will be able to use this as a marketing tool to high-level professionals who might not otherwise choose to work with a small company but can see future success in the business.”

She said the change could appeal to higher earners in particular.

“They are unlikely to be put off by the loss of some of their employment rights and will be attracted by the opportunity to have a share in a small or medium sized company with big potential,” she pointed out.

Graeme Dickson, employment associate at Thorntons, cautioned that individuals could be giving up employment rights in exchange for shares without fully appreciating that they may not receive any return.

“Often there is no market for shares because there is no party which is looking to purchase. This could mean the shares have no real value.”

Business owners will decide what kind of shares in the company staff are offered, while individuals will be able to sell the equity on at a later date and keep the profit.