CG56531 - Employee share schemes: trustees: employee benefit trusts

Employers may set up trusts, known as Employee Benefit Trusts, to provide a variety of employee incentives. In many cases these employee benefit trusts will operate in conjunction with employment-related securities schemes which the employer has established for its employees.

The trust will purchase shares or other securities either in the market, from the company, or from particular shareholders. These will then be distributed as required to the company’s employees, or to employee share etc. scheme trustees, depending on the particular scheme being operated. Schemes operated in conjunction with employee benefit trusts should be distinguished from Share Incentive Plans that meet the requirements of Chapter 6 Part 7 and Schedule 2 ITEPA03. These requirements include the establishment of a body of trustees to operate the plan.

Trusts set up by an employer to provide employee benefits in the form of shares or options over shares may be funded by either gifts or loans from the employer. They may also borrow money from banks to purchase the shares that they will later pass to the employees. There is therefore considerable flexibility in the arrangements. For unquoted companies, such trusts can be especially useful. The trustees can buy shares in the company from employees who wish to sell, or who are leaving the company, and thus permit a market for those shares without allowing `outsiders’ to obtain a stake in the company. The shares can later be redistributed through the employee share schemes to other employees.