[Question] Giving loyal staff a share in the business

[Peter1952]

I want to give loyal staff a share in my business. I am a registered CC. I would like advice on how to go about it.

Once they have a share in the business, does this entitle them to have full access to all the company's finances?

[Cpt Chaos]

Hi Peter,

If memory serves me correctly you can give staff non "executive", for the lack of a better word, shares where they merely hold a small percentage of shares. A large waste removal company in SA has gone a similar route but they have set rules and regulations around the ownership of the shares. These included but wasn't limited to: Shares in the company is not payable in terms of yearly dividends as these yearly "dividends" will be reinvested in the company but will be paid out when resigning after a minimum of 5 years or when retrenched. Should the employee be fired he/she would not be eligible to claim his share.

More details on how to go about doing this your best bet would either be a accountant or lawyer to assist.

[wynn]

I would recommend you give them profit sharing on a figure that would be equal to the shares you wish to give them.

advantage:- they don't get to see any financials, only what their share of the profit is and if they should leave they don't take their shares with them.

[CLIVE-TRIANGLE]

Once they have a share in the business, does this entitle them to have full access to all the company's finances?

Exactly the same rights as you, which includes title to the assets of the cc should it ever be liquidated or otherwise wound up.

Wynn's suggestion is far, far preferable. There is however one caution; staff will never, ever believe your profit figures. As far as they are concerned you are making millions and just inflating expenses to reduce their cut.

[Justloadit]

Whilst it sounds noble in doing a share to employees, it only works well with public companies.
When you are a small company, the trouble it raises, far outweighs the benefits you think your employees are going to benefit.

I would think very long and hard before I would implement this option.

An example, what if your employee disappears and never returns?
Now, when and how do you remove the employee from the company shares with out his/her signature?
Another one, what if the company makes no profit, will the employees contribute to the company financially to place the company back into operation?

Once you start placing exceptions to shareholders, a typical CC or PTY may have problems following the non executive share path, unless it is part of the MOI.
The fact that they may be non executive share holders does not bar them from looking at the financials, and the first place they want to look at is the director's remuneration. What ever the figure is, irrespective of the responsibilities required, it will always be frowned upon as over paid.

[Blurock]

A very noble idea, but the potential problems may outweigh the benefits.

I would go with Wynn's idea of a profit share. Open communication builds trust and employee motivation in the long run. Make the profit share worth while and communicate weekly or monthly progress. By linking a profit share bonus to team performance, the dead wood get sorted out by the team and performance should improve.