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Financial Participation

In Ireland up to the economic and financial crisis there were favourable legal and tax conditions for financial participation models. The favourable legal framework is reflected in the relatively high number of participation schemes.



Generally, approved schemes operate as follows: First a trust is set up and trustees appointed. Then the involved company passes a sum of money, its profit-sharing contribution, to the trust. This money can be used by trustees to purchase shares in the company on behalf of all eligible employees. In order to seek approval for its profit-sharing / employee shareholding scheme a company must first apply in writing to the Revenue Commissioners, including relevant details. Approval will be forthcoming if the scheme meets specific requirements concerning the trust, participant eligibility and participant shares.1

The Trust


A company must establish a trust, which will purchase shares on behalf of participating employees. Trustees must be domiciled in Ireland and will be required to maintain necessary records, e.g. the amount of shares allocated to individual participants. Trust will be subject to general trust law.



Participant eligibility


Participation in approved schemes must be open to all full-time employees or directors of a company who are chargeable to tax with regard to their employment or office. All employees must be entitled to participate on similar terms. However, if the amount of shares appropriated to an employee were to vary with the length of service or the level of remuneration, the legislation does not consider this as incompatible with employee participation on similar terms.



Participant shares


Shares issued to participants in approved employee share ownership schemes must form part of the normal share capital of the company concerned or its controlling parent company. Furthermore, they must be shares of a class quoted on a recognized stock exchange. Additionally, participant shares must involve the same privileges and rights which are attached to shares of a similar class held by conventional shareholders, i.e. they must be non-redeemable, free of any restrictions other than those that attached to all shares of the same class. Ultimately, closed or private unquoted companies were not precluded from setting up approved schemes, provided the Revenue Commissioners were satisfied with their method of share valuation.



In view of the operation of approved schemes some aspects and steps have to be considered:



Company contribution


First, a trust is established and trustees appointed. Subsequently, the company passes a sum of money (e.g. a proportion of profit-sharing) to the trust. This money is used by trustees to buy shares in the company on behalf of all eligible employees. A company can shorten this process by passing directly to the trust a block of its own newly issued shares as its profit-sharing contribution.



Share distribution


Once trustees have purchased or received a block of shares from the company, they must be credited to blocked accounts of individual participants. Setting the conditions for allocating the block of shares among eligible employees is basically a company decision. Shares are not immediately released or distributed and employees must – under the terms of the Act – agree to their retention by the trustees for a minimum period of two years. Employees can instruct trustees to release, sell on their behalf or retain their shares. Employees who instruct trustees to sell or transfer shares to their name will be liable for income tax. The extent of this liability will vary inversely with the time elapsed from the end of the retention period.




Tax incentives


With regard to tax incentives for companies and private individuals, a number of different options were available until the onset of the economic and financial crisis. These were however basically all scrapped in the 2011 budget.




Wilke, Maack and Partner (2014) Country reports on Financial Participation in Europe. Prepared for www.worker-participation.eu. Reports first published in 2007 and fully updated in 2014.