The Companies Act definition of employees' share scheme and its implications

Copyright © 2025 LexisNexis
Published by a LexisNexis Share Incentives expert
Practice notes

The Companies Act definition of employees' share scheme and its implications

Copyright © 2025 LexisNexis

Published by a LexisNexis Share Incentives expert

Practice notes
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Importance of the definition of employees' share scheme in Companies Act 2006

When establishing a share incentive scheme for employees it is usual for the scheme to be structured and drafted so as to constitute an ‘Employees’ share scheme' that falls within the Companies Act 2006 (CA 2006) definition. This is because a number of restrictions under CA 2006 do not apply to an employees' share scheme and therefore companies can often rely on these exemptions when operating their employee share incentives. In practice, the employees’ share scheme exemptions which are usually most relevant are those relating to CA 2006 provisions on:

  1. •

    the Allotment of Shares and grant of share options

  2. •

    share pre-emption rights

  3. •

    financial assistance requirements (subject to specified conditions)

  4. •

    the transfer of treasury shares, and

  5. •

    the buy-back of shares by a company

In addition, there are implications of a scheme being an employees' share scheme pursuant to the UK Listing Rules.

Care must be taken never unintentionally to taint the status of a bona fide

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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Employees’ share scheme definition
What does Employees’ share scheme mean?

CA 2006, s 1166 defines an 'employees’ share scheme' as a scheme for encouraging or facilitating the holding of shares in or debentures of a company by or for the benefit of bona fide employees or former employees of the company, any subsidiary of the company or the company’s holding company or any subsidiary of the company’s holding company, or the spouses, civil partners, surviving spouses, surviving civil partners, or minor children or step-children of such employees or former employees. An employees' share scheme benefits from certain exemptions from UK company law requirements, as well as a specific exemption from the general prohibition on financial promotions in the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005, SI 2005/1529, art 60.

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