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Should I Offer Shares in the Business to Employees?

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Last editedMar 20212 min read

If you run your own business you likely never stop looking for new ways to bring in funds. Driving profits higher is always desirable of course, but even the most successful business needs an extra injection of capital from time to time. This capital might be used to expand the business directly via purchases of things like stock, plant, or premises, or else to pay down debt.

Selling shares in a company is a well-established means of raising money, but the same shares can also be offered to employees in the business. Although offering shares in your business to employees won’t raise capital it does offer a range of advantages – some of these will save money, others will change the way in which your business operates.

How to sell shares of your business

First, you need to decide exactly how many shares you want to offload. If you offer too many shares to employees you’ll lose control over future decisions, but too few might not be attractive enough for the employees themselves to want to take advantage of the offer. In addition to making this delicate calculation it’s vital, before deciding to offer shares in your business to your employees, that you weigh up the pros and cons:

The pros of offering shares in the business to your employees

Motivation

If your employees have a genuine, direct and measurable stake in the business, they may be motivated to become more productive. Offering shares to your employees will align their interests with those of the owners of the business and any other shareholders.

Recruitment

Having an employee share scheme in place will make it easier to attract talent for your business, and to retain the best employees you already have. By offering shares you’ll be offering something more than simply a paycheck every month – you’ll be offering the chance to feel genuinely involved with the ownership and the future of the business.

Cash flow

Offering shares to your employee can ease any cash flow issues you may be having because it can take the place – either partially or wholly – of increased wages or other bonus schemes.

Turning your employees into shareholders in the business can help lessen the burden owners often feel when they run everything single handedly. The shared ownership model disperses responsibility for decisions across a number of people, rather than leaving you to lead entirely from the front. This has a dual benefit: new ideas and ways of looking at overarching business decisions will be supplied by those used to dealing with the business at the “sharp end”; and you’ll be under less of the kind of individual stress that can be psychologically and even physically harmful.

The cons of offering shares in the business to your employees

Expectation

Once your employees have a stake in the value of shares, they may come to the conclusion that the best way to realize their value is to sell the business. Even without the pressure to sell coming from below, you may find yourself coping with unrealistic expectations from your employees, who feel that because they are shareholders they should be in line for more lavish financial rewards.

Loss of control

As shareholders your employees will have the right to a say in how your business is run and also to be able to see detailed financial information. This is why it’s so important to get the balance of control right via the number of shares given to employees – if employees have too many shares you may find the advantage of a lowered leadership burden being outweighed by the difficulty in doing exactly what you want to do to what is still, overwhelmingly, your business.

The volatility of the stock markets means that the value of the shares your employees have can go up and down with little or no relation to the performance of the business itself. Either of these could be damaging – if the share value rises too high employees might think they can ease back on the productivity being delivered, and if it sinks too low the impact on employee morale could be hugely damaging.

We can help

If you need advice on administering an employee share scheme then get in touch with our experts. We know all about keeping businesses running smoothly and can

help you with ad hoc payments or recurring payments.