Gifts of shares of a private limited company

Company shares can be hugely valuable, and, as a business owner, you might want to offer shares as part of an employment package.

There are two primary issues to consider when deciding how to create a gift of shares of private limited company ownership:

  1. Do you want to transfer existing shares to another person as a gift?
  1. Or, would you prefer to issue new shares, diluting the value of existing shares but with some tax benefits?

Your total shareholding is tied into the business’s value, so it’s also worth seeking professional advice on how to value a company in the UK before making any long-term decisions.

The benefits of offering business shares as an employee perk

You can learn more about ways to strengthen your remuneration packages in our guide to employee incentive arrangements.

There are share plans with considerable tax advantages that are often the best option. It’s vital to assess the overall benefits, not just the nominal value of the gifted shares.

But, shares are an excellent way of improving employee buy-in since they now have an intrinsic motivation to help the business grow and succeed!

It’s also essential to consult existing shareholders with proposed plans since you’ll need to look at factors such as:

  • What happens when an employee leaves – will former staff continue to benefit from the company’s growth?
  • Are all the shareholders on board with the decision, and will it impact any majority ownership in the business?

One option is to include provisions in your Articles of Association (your trading procedures filed with Companies House) to set out what happens to shareholder rights for previous employees.

You can include ‘drag along rights’, which mean if you sell the business at some point, the shareholders are protected from risk.

The key to leveraging gifts of shares to drive staff engagement links to areas like the disadvantages of zero-hours contracts.

By inviting teams to be part of the business ownership, you offer them a mutually beneficial pay structure where they stand to earn far more than their basic salary!

For more guidance and specific information on gifting shares, consider the option to hire a lawyer for a startup company.

Tax considerations when gifting company shares

The two scenarios we talked about earlier carry different pros and cons regarding tax.

Issuing new shares as employee gifts

New share issues, where you create new shares that aren’t already in circulation, mean diluting the value owned by existing shareholders.

The upside to this is that your shareholders won’t be liable for capital gains tax.

You can also create a new employee class of shares with different dividend rates.

Transferring shares to staff

The other route is to transfer shares. That transfer can be made as a gift, at a discounted rate, or any value the directors decide on.

Unfortunately, a share transfer means the previous owner will need to declare the disposal for capital gains tax and pay the resulting bill. That option also means that the gifted shares will be in the same share category, so you can’t decide on alternative dividend payment rates.

An advantage here is that you aren’t diluting the shareholder’s value, so existing owners won’t see their proportion of business ownership drop in value.

There isn’t a right or wrong way to issue private limited company share gifts, but there are several options, each with advantages and disadvantages that might influence your decisions.

There are significant benefits to offering shares as part of a pay package, particularly for new start-ups that cannot provide a higher wage. But, it requires intelligent planning to ensure that the ownership structure and tax liabilities are acceptable to you, other shareholders, and the gift recipient.


What next?

Please leave us your details and we’ll contact you to discuss your situation and legal requirements. There’s no charge for your initial consultation, and no obligation to instruct us. We aim to respond to all messages received within 24 hours.

  • This field is for validation purposes and should be left unchanged.

Your data will only be used by Harper James Solicitors. We will never sell your data and promise to keep it secure. You can find further information in our Privacy Policy.

Our offices

A national law firm

A national law firm

Our commercial lawyers are based in or close to major cities across the UK, providing expert legal advice to clients both locally and nationally.

We mainly work remotely, so we can work with you wherever you are. But we can arrange face-to-face meeting at our offices or a location of your choosing.

Floor 5, Cavendish House, 39-41 Waterloo Street, Birmingham, B2 5PP
Stirling House, Cambridge Innovation Park, Denny End Road, Waterbeach, Cambridge, CB25 9QE
13th Floor, Piccadilly Plaza, Manchester, M1 4BT
10 Fitzroy Square, London, W1T 5HP
Harwell Innovation Centre, 173 Curie Avenue, Harwell, Oxfordshire, OX11 0QG
2-5 Velocity Tower, 1 St Mary’s Square, Sheffield, S1 4LP
A national law firm

To access legal support from just £125 per hour arrange your free no-obligation initial consultation to discuss your business requirements.

Make an enquiry

X