Employee Share Schemes (ESS) are increasingly becoming popular strategies for business owners who are looking to, among other things, boost employee productivity or attract and retain key staff.

What are Employee Share Schemes?

An ESS is where an employer offers its employees shares in the company as an alternative (or addition) to the standard forms of remuneration. An ESS can help incentivise employees to meet performance targets and allow them to share in the collective success of the company. 


How are Employee Share Schemes used in practice?

Structuring an ESS should be considered in the context of your own business and the effectiveness of a particular structure will depend on a range of factors, including whether the company is closely or widely held, the tax position of the company and the rationale for employing the ESS. An ESS is especially beneficial to start-up companies who typically have a need to preserve working capital and attract key workers at competitive rates.


Types of ESS



Employee Share Option Plan (ESOP)

Employee Share Loan

Conditional Share Schemes


What it is?


The option to purchase the shares in the future at a set price.


Shares are issued upfront in the form of a loan and the employee must pay back the value over time, typically through their salary or bonuses.

Shares are offered to employees upon achievement of Key Performance Indicators (KPIs) (or satisfaction of other conditions)


Implications of Employee Share Schemes

Careful consideration needs to be given as to which employees are to be offered shares (and how many shares), given the considerable responsibility to be placed upon the employee and the potential risk to the company and its existing shareholders if issues arise in the future.

When setting up an ESS, business owners should be aware of the legal and tax obligations they will be subject to.  Privately held businesses will need to ensure they are complying with any provisions in Companies Act 1993, particularly with regard to the ‘financial assistance’ provisions, which will apply if it is the company that finances the employee’s acquisition of the shares. There are also exemption, reporting and disclosure requirements under the Financial Markets Conduct Act 2013 to factor in.   


For more information

There are many moving parts to ESS structures and getting them right is critical to ensure each parties’ rights and obligations are recorded to avoid dispute in the future wherever possible and to ensure regulatory compliance. 

If you are looking to set up a ESS structure, we recommend that you seek legal and tax advice to understand precisely what your obligations are and what structure will be best for your business.

Share schemes | JB Morrison