Skip to main content
Insight

Employee ownership and share buy back changes

18/02/2013
The UK Government has announced changes in company law to help promote employee ownership (Implementation of Nuttall Review - Recommendation V: Government response to consultation (BIS, 15 February The UK Government has announced changes in company law to help promote employee ownership (Implementation of Nuttall Review - Recommendation V: Government response to consultation (BIS, 15 February 2013). 

These changes are an important start in making employee ownership mainstream in the UK:

(1) changes in the Companies Act 2006 will help raise awareness of the concept of employee ownership i.e. the idea that a company’s business and its staff can benefit if a significant and meaningful shareholding stake in that business is held by or on behalf of all employees;

(2) the changes in how share buy backs can be financed are a step towards addressing the lack of resources, including funding, to create and maintain employee ownership; and

(3) the deregulatory nature of these changes helps overcome concerns about the complexity of employee ownership arrangements.

These changes are more wide ranging than originally expected.  They target improvements in the operation of internal share markets, to support companies using direct employee share ownership.  This is just one of the possible forms of employee ownership.  There is a bigger picture, as explained in the Nuttall Review. This announcement shows the Government is prepared to back its many recent words of support for employee ownership, with ambitious action.

The Government intends to amend the Companies Act 2006 by secondary legislation so that the following measures will come into force during 2013:

In relation to authorising share buy backs these amendments will:


(1) allow off-market share buy backs to be authorised by ordinary (rather than special) resolution; and


(2) allow for the prior approval of multiple off-market share buy backs for the purposes of or pursuant to an employees’ share scheme, to be authorised by a single ordinary resolution.



In relation to financing share buy backs these amendments will:


(1) allow private limited companies to pay for its own shares in instalments (where the buy back is for the purposes of or pursuant to an employees’ share scheme);


(2) allow for private limited companies to finance buy backs (for the purposes of or pursuant to an employees’ share scheme) out of capital subject to the signing of a solvency statement by the board of directors and shareholder approval by special resolution; and


(3) allow private limited companies to buy back shares using small amounts of cash (an amount not exceeding the lower of £15,000 or the cash equivalent of 5% of share capital in any financial year) that does not have to be identified as distributable reserves.



In relation to treasury shares these amendments will:


(1) allow all companies limited by shares to hold their own shares in treasury and to deal with such shares as treasury shares.



There may be disappointment that some of these changes only apply to employees’ share schemes.  But this restriction obviously helps promote employee ownership: it will focus attention on the main purpose of these changes which is, as part of a proposed wider set of measures, to help make employee ownership a mainstream part of the UK economy.

Sign up to our email digest

Click to subscribe or manage your email preferences.

SUBSCRIBE