Gifting Shares to an Employee

It is common for companies to offer shares to employees.

Gifting shares to staff members can reward employees who are essential to the business’s success.

This practice not only aligns employees’ interests with the company’s, but it also acts as a strong motivating tool.

Proper preparation is vital for an employer before distributing shares to its staff as a gift or a reward.

As an employer, you must create the proper framework for your employees and directors before offering them shares as gifts.

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Why gift shares to employees?

  • Employee retention and motivation

Gifting shares to UK employees is an effective technique to boost employee retention and motivation.

When employees get shares in the company, they not only feel valued and appreciated but also build a greater sense of commitment to the company.

This improved commitment leads to longer tenures and enhanced job satisfaction.

Employees with a stake in the business’s success are more likely to stay engaged and contribute to its development, thus decreasing turnover rates and associated expenses.

  • Alignment of interests

When employees become shareholders, their goals and aspirations are directly connected to the company’s.

They share a mutual interest in the business’s profitability, performance, and long-term success.

This alignment promotes a sense of teamwork and unity, where employees are not just working for the business but working with the organisation to attain common objectives.

  • Tax advantages

In the UK, there are tax implications for giving shares to employees.

These implications offer notable tax benefits for both the business and its employees.

For the organisation, the cost of offering shares may be offset against its taxable profits, resulting in decreased corporate tax liabilities.

As for the employees, they may enjoy tax advantages, including decreases in income tax and capital gains tax.

These tax-effective schemes make gifting shares a beneficial option for both parties and contribute to its popularity as a method of encouraging and motivating employees.

Implementation of gifting shares to an employee

There are numerous things which a company requires to consider while giving shares to their employees.

The number of steps include:

1. Which is a preferable option for giving employees shares as gifts?

The employer offers a variety of ways for its staff to receive shares as gifts.

Employers can select from four different types of tax-advantaged plans:

  • Enterprise management incentives (EMI)
  • Share incentive plans (SIPs)
  • Company Share option plans (CSOPs)
  • Save-as-you-earn (SAYE)

Since EMI is flexible and tax-efficient, many businesses choose it.

2. Recording of gifting of shares

The company must record all information on gifted shares when they are gifted and reported to HMRC under the limited securities regime.

3. Changes to the article or shareholders’ agreement

There is a necessity to pass a resolution if the modifications made to articles or shareholders’ agreements are required to give shares to employees.

The shareholder’s approval is required for this action.

Fulfilling company house requirements is also essential.

Share valuation

Determining the value of shares to be given as gifts to employees is an essential legal aspect.

To guarantee precise and equitable share evaluation, the business should either employ a qualified evaluator or use an effective online tool.

This valuation process is important to decide the number of shares to be gifted and for compliance with tax regulations.

Eligibility and participation

Legal documentation should specify the conditions that make employees eligible for gift of shares.

These requirements may include service history, job responsibilities, or performance standards.

Also, the procedure for employees to participate in the shared gifting plan should be clearly outlined.

Maintaining a clear and legally sound eligibility and involvement framework ensures fairness and transparency in the distribution of shares.

Share Vesting

Share vesting is a legal mechanism that states when employees acquire full ownership of the shares they have received.

Vesting plans can be performance- or time-based, with varying requirements for each employee.

These vesting terms should be specified in legal documents, offering a clear and organised route to share ownership.

When an employee quits the company prematurely, vesting schedules frequently dictate the status of their unvested shares.


Legal agreements play an essential part in the share gifting process.

To legally formalise the agreement between the company and its employees, share option agreements or share purchase agreements are frequently utilised.

These agreements specify the parameters of the share gift, including the quantity and value of shares, the schedule for when they will vest, and any limitations or requirements related to the gifted shares.

What are the risks?

Gifting shares to staff members carries potential risks, necessitating legal advice and protective regulations within the company’s articles of association and shareholders’ agreement.

  • One significant risk is that employees may decide to leave the company, which could result in the lapse of their share options.
  • Directors may choose to retain valued ex-employees as shareholders or have particular leavers relinquish their shares depending on the circumstances of their departure.
  • Companies frequently use “good leaver” and “bad leaver” clauses, described in shareholders’ agreements or the legislation controlling EMI share option schemes, to address these problems.
  • Good leavers are workers who leave for a reason, such as a disability or death.
  • In contrast, bad leavers include all other situations, such as being fired for misbehaviour.

In addition, some shareholders can plan to sell their shares in the event of an exit, while others would rather not. Incorporating “drag along” rights into articles of association can help companies reduce this risk.

This provision gives the majority of shareholders the power to force all minority shareholders to sell their shares when they transfer all of their shares—not just some—to a legitimate purchaser on fair terms.

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Final thoughts

Gifting shares to employees in the UK is an effective method for improving employee retention, motivation, and alignment of interests.

By selecting the appropriate employee share scheme, navigating legal considerations, and following a structured implementation process, businesses can successfully implement share gifting programs that are beneficial to the firm and its employees.

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