To give an employee shares, a private company either allots new shares or an existing shareholder transfers some of theirs. For new shares the board needs authority to allot, pre emption rights must be dealt with, and the allotment must be registered and reported to Companies House within a month. For a transfer, the articles’ transfer rules and stamp duty apply instead.

This page covers the corporate steps only. The income tax and National Insurance position is explained in giving shares to employees: the income tax charge, and the general mechanics of a share issue in how to allot new shares.

Should the employee receive new shares or existing ones?

A new issue dilutes every existing shareholder in proportion and puts any subscription money into the company. A transfer moves shares from one shareholder, often a founder, and any price goes to that shareholder personally. The legal steps differ:

Step New shares Transfer of existing shares
Authority Directors need authority to allot, unless an exception applies No authority needed; directors approve registration
Pre emption Statutory right under section 561, unless excluded or disapplied Only if the articles or a shareholders’ agreement give one
Document Board minute, application or subscription letter Stock transfer form
Stamp duty None on a subscription for new shares 0.5% where the consideration is over £1,000
Companies House Return of allotment within one month No return of allotment; update the register of members

Do the directors need authority to allot?

Section 549 of the Companies Act 2006 says directors must not allot shares except in accordance with section 550 or section 551. Section 550 lets the directors of a private company with only one class of shares allot shares of that class unless the articles prohibit it. If the company has more than one class, or the employee is to receive a new class, authority must come from the articles or a resolution under section 551. That authority must state the maximum number of shares and an expiry date no more than five years ahead, and section 551(8) allows it to be given by ordinary resolution even though it amends the articles. A copy of the resolution goes to Companies House within 15 days.

Does the employees’ share scheme exception help?

Section 549(2) disapplies the authority requirement for shares allotted in pursuance of an employees’ share scheme. Section 1166 defines such a scheme as one for encouraging or facilitating the holding of shares by or for the benefit of bona fide employees or former employees of the company or its group, or their spouses, civil partners and minor children or stepchildren. A documented plan open to employees fits that description. A single negotiated award to one senior hire is less obviously a scheme, so many companies pass an authority resolution anyway rather than rely on the exception.

Do the existing shareholders have to be offered the shares first?

Section 561 normally requires equity securities to be offered to existing ordinary shareholders in proportion to their holdings before anyone else. There are three ways round it for an employee issue:

  • Employees’ share scheme exception. Section 566 says section 561 does not apply to equity securities to be held under or allotted pursuant to an employees’ share scheme.
  • Exclusion in the articles. Section 567 allows a private company’s articles to exclude section 561, generally or for particular allotments.
  • Disapplication. Under section 569, a private company with one class of shares can give the directors power to allot as if section 561 did not apply, by the articles or a special resolution. Section 570 does the same where the directors have a general section 551 authority.

Bespoke articles sometimes contain their own pre emption clause that does not carve out employees, so check the articles as well as the statute. The routes are compared in pre emption rights.

Which class of share should the employee get, and on what terms?

Employers often want employee shares to carry economic value but limited control, and to come back if the employee leaves. That is done through the share rights and the articles:

  • Rights. Model article 22 lets a company issue shares with rights or restrictions determined by ordinary resolution, subject to the articles. Detailed rights, such as no votes or participation only above a hurdle value, are normally written into the articles. Amending the articles needs a special resolution under section 21. See growth shares for a common design.
  • Payment. Model article 21 prohibits issuing a share for less than its nominal value plus any premium, so under the model articles employee shares must be fully paid on issue.
  • Leaver terms. Good leaver and bad leaver clauses requiring a departing employee to offer back their shares at a set price are a matter for the articles or a shareholders’ agreement. The model articles have none, so a company relying on them must adopt such terms before the issue.

What if a founder transfers shares instead?

The founder signs a stock transfer form and the board decides whether to register it. Model article 26 lets the directors refuse registration, and any pre emption on transfer in the articles must be followed or waived. HMRC guidance says stamp duty at 0.5% applies to shares bought on a stock transfer form where the consideration is over £1,000, and nothing is payable if the shares are given for nothing. Under section 771 the company must register the transfer or give notice of refusal within two months of it being lodged, and section 776 requires the new certificate to be ready within the same period.

What has to be recorded and filed after a new issue?

  1. Board minute. Record the allotment, the authority relied on, and how pre emption was dealt with.
  2. Register of members. Section 554 requires the allotment to be registered as soon as practicable and within two months. Section 113 requires the register to show the shares held and the amount paid up.
  3. Return of allotment. Section 555 requires a return to Companies House within one month of the allotment, with a statement of capital. See the SH01 return of allotment.
  4. Share certificate. Section 769 requires certificates to be ready within two months of the allotment.
  5. Resolutions. File any special resolution, and any section 551 authority, within 15 days under section 30.
  6. People with significant control. If the employee will hold more than 25% of the shares or votes, or the issue moves an existing PSC into a different band at 50% or 75%, Companies House guidance requires the change to be notified within 14 days.

What tax filings does the company need to diary?

Shares acquired because of employment are employment related securities. HMRC guidance says a company should register a non tax advantaged arrangement by 6 July after the tax year in which the first reportable event happened, and submit a return or nil return by 6 July after each tax year. If the shares carry restrictions such as forfeiture on leaving, an election under section 431 of the Income Tax (Earnings and Pensions) Act 2003 must be made in an HMRC approved form within 14 days of the acquisition. Options under EMI have their own notification rules.

How might this work in practice?

Illustration only. A company has 100 ordinary shares, all held by its founder, and adopted the model articles. It wants to give a new finance director 10 shares in a new class carrying no votes, with a bad leaver clause. Because a second class is being created, section 550 will no longer cover future issues, so the founder passes written resolutions: a special resolution adopting amended articles setting out the new class rights and leaver terms, an ordinary resolution under section 551 authorising up to 10 of the new shares for one year, and a special resolution under section 571 disapplying pre emption for that specified allotment, preceded by the directors’ written statement of their reasons and the price. The finance director pays the nominal value, the board allots, and within the deadlines the company updates the register, issues a certificate, files the return of allotment and the resolutions, and diarises the employment related securities return and the 14 day window for any section 431 election.

What mistakes come up most often?

  • Allotting a new class under section 550, which covers only a company with one class.
  • Assuming the employees’ share scheme exceptions cover a single negotiated award.
  • Issuing shares before leaver terms are in the articles, then finding there is no way to recover them.
  • Recording the employee as paying less than nominal value, which model article 21 does not allow.
  • Missing the one month deadline for the return of allotment or the 14 day window for a section 431 election.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.