Employees' share scheme

In general usage, an arrangement to provide benefits to employees (including executive directors, but not usually non-executive directors) in the form of shares, share options, interests in shares or other benefits derived from shares. The shares are usually shares in the employer company or a parent company of the employer. Schemes of this kind are used to recruit, retain and motivate employees and are often felt or intended to align employees' interests with those of shareholders. There are many different types and their regulation and use varies between countries and between different types of company. For more information, see PLC Share Schemes & Incentives, Practice note, Employee share schemes: an introduction (www.practicallaw.com/9-107-4444).

There is a statutory definition of "employees' share scheme" in section 1166 of the Companies Act 2006. An "employees' share scheme" benefits from certain exemptions from UK company law requirements. For more information, see Practice note, Benefits of being an employees' share scheme (under Companies Act 2006) (www.practicallaw.com/6-559-2447) and PLC Share Schemes & Incentives, Practice note, Companies Act 2006: provisions referring to employees' share schemes (www.practicallaw.com/4-381-2886).

There is also a statutory definition of "employee share scheme" for the purposes of certain aspects of UK financial services law. This term is defined in a specific exemption from the general prohibition on financial promotions in article 60 of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005. Schemes that fall within this definition also benefit from other exemptions and exclusions in financial services regulation which do not make use of a formal definition of the term. For more information, see PLC Share Schemes & Incentives, Practice note, Financial services (FSMA 2000) regulation and the operation of share plans (www.practicallaw.com/0-382-2057).

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