ERSM200020 – Public Offers

Priority allocations of shares

Legislation

The legislation was originally enacted in FA88/S68 at a time when employees were acquiring priority allocations of shares in various privatisations of publicly-owned companies. It was incorporated as Chapter 10 Part 7 ITEPA 2003 (at ITEPA03/S542 et seq).

Conditions for relief

The conditions to be met to obtain relief from liability when there is a priority share allocation are:-

• All employees or directors entitled to a priority allocation of shares must be entitled to it on similar terms (see below).
• The persons entitled to the priority allocation must not be only directors or those whose remuneration exceeds a particular level – see ITEPA03/S542 (6).
• The shares in the employee/director priority allocation must not exceed 10 per cent of the total shares on offer to members of the public and employees – see ITEPA03/S542 (3).
• Where there is more than one offer to the public (perhaps a fixed price offer, and a separate tender offer), up to 40 per cent of the shares in any single part of the offer may go to employees and directors provided that the figure of 10 per cent is not exceeded for the offer as a whole – see ITEPA03/S544.

“On similar terms”

The similar terms condition allows for the number of shares to which employees and directors have priority rights to vary according to their length of service, or their remuneration or other such factors – see ITEPA03/S542 (5), ITEPA03/S544 (5) and ITEPA03/S546.

Different allocations can be made to employees of the company, the shares of which are being allocated, and to employees and directors of other companies, provided that all employees and directors broadly receive an allocation of shares of a similar value overall.

Meaning of “director”

"Director" means-

1. in relation to a company whose affairs are managed by a board of directors or similar body, a member of that body,
2. in relation to a company whose affairs are managed by a single director or similar person, that director or person, and
3. in relation to a company whose affairs are managed by the members themselves, a member of the company, and

includes any person in accordance with whose directions or instructions the directors of the company (as in (a) to (c) above) are accustomed to act.

Prospective & former directors and employees

The terms “director” and “employee” include those about to become or who have ceased to be a director or employee.

Conditions for relief not satisfied

In most public offers and in privatisations the above conditions will almost certainly be met. Where there is doubt, a submission should be made to the Employee Shares & Securities Unit (see ERSM10040).