Out-Law News 2 min. read
01 May 2013, 10:26 am
It said that the changes would make it easier for companies that issue shares directly to their employees to buy these back when workers leave the company. This will enable companies to reissue these shares more easily to new employees, and to avoid companies that encourage employee ownership from becoming predominantly owned by former employees or third parties.
The changes were recommended by Government adviser Graeme Nuttall as part of his independent review of the regulatory burdens surrounding employee ownership. The Companies Act 2006 will be amended to implement them.
Announcing the changes, Employment Minister Jo Swinson reiterated the Government's commitment to support for employee-owned companies. It has designated 4 July 2013 as the first 'national Employee Ownership Day', she said.
"Evidence shows that employee-owned companies can be more profitable, create more jobs and were more resilient during the economic downturn," she said. "We are committed to making direct employee ownership more attractive, cutting red tape for companies, and promoting new and more responsible ways of running a business."
"I hope these changes, alongside the announcement of an Employee Ownership Day on 4 July, will raise awareness of the benefits of employee owned companies and lead to an increase in the number of direct employee owned firms across the UK," she said.
Employee-owned companies are those where the employees have a "significant and meaningful" stake in the company they work for, particularly through the ownership of shares that amount to a substantial or controlling stake. Companies can be owned directly by employees, through the use of employee share plans; or indirectly, where shares are held collectively on behalf of the employees through a structure such as a benefit trust. There were around 250 UK businesses wholly or significantly owned by their employees, with an annual turnover of approximately £30 billion and 130,000 employees, in 2011 according to Government figures.
The Government-commissioned Nuttall Review of employee ownership was published in July 2012. Amongst his conclusions and recommendations, Graeme Nuttall found that company law provisions relating to where companies were buying back their own shares were overly burdensome. Currently, companies that wish to repurchase their own shares can only do so with the approval of three quarters of their shareholders.
Among the changes introduced by the Government is reducing the approval threshold to an ordinary resolution, or simple majority. This will apply where shares are being bought back 'off-market'; or not through a regulated stock exchange. Private limited companies will also be able to authorise multiple share buybacks over a specific period of time in advance, through a single shareholder resolution, where the shares were issued as part of an employee share scheme.
Businesses will also be given a greater range of options for financing share buy-backs. They will now be able to make payments in instalments with the agreement of the seller; out of their capital reserves using a solvency statement and special resolution; or in cash, without having to identify this as distributable reserves, subject to thresholds. Companies will also be able to hold bought back shares 'in treasury'; allowing them to hold onto them until they can be issued to new employees or share scheme joiners.
Share plans expert Lynette Jacobs of Pinsent Masons, the law firm behind Out-Law.com, welcomed the changes, which she said would make it "easier" for companies to buy back shares from employees.
"The general relaxation of the percentage shareholder approval required to authorise share buy backs and the ability for a company to obtain advance shareholder approval for off-market purchases of its own shares over a specified period should encourage more companies to offer employee share ownership arrangements," she said.
"We welcome the introduction of 'Employee Ownership Day', and are planning how we will mark it!" she said.
