Changes to Companies Act promote employee ownership

The government’s changes to the Companies Act 2006, which aim to promote employee ownership, come into effect on 30 April, following approval from both the House of Commons and the House of Lords.

In relation to authorising share buy backs, these amendments will:

  • Allow off-market share buy backs to be authorised by ordinary, rather than special, resolution.
  • 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:

  • Allow private limited companies to pay for their own shares in installments, where the buy back is for the purposes of, or pursuant to, an employee share scheme.
  • Allow for private limited companies to finance buy backs for the purposes of, or pursuant to, an employee share scheme out of capital, subject to the signing of a solvency statement by the board of directors and shareholder approval by special resolution.
  • Allow for 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:

  • Allow all companies limited by shares to hold their own shares in treasury and to deal with such shares as treasury shares.

Graeme Nuttall, partner at Field Fisher Waterhouse and author of the Nuttall Review (pictured), said: “These significant changes in company law will bring employee ownership to the attention of a wider audience. 

“The changes will provide many companies with a less expensive and simpler way to run an internal share market for employees’ share schemes. 

“As a Nuttall Review recommendation, they will always be linked to the broader goal of making employee ownership a widespread feature of the UK economy.”

Iain Hasdell, chief executive of the Employee Ownership Association (EOA), added: “I welcome the enactment of this statutory instrument and the government’s commitment to looking at further refinements to it in the future.

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“The instrument will improve the workings of internal share markets and it will reduce costs.

“The enactment sends an important signal to the business community and professional advisers that the government is serious about promoting employee ownership.”