If you want to buy shares in your company during the Coronavirus pandemic, you’re in luck – here’s how to do it…
A popular way to invest your money is to buy shares in the company you work for. It’s less risky than buying shares in companies you know nothing about, as you have inside knowledge on how well the company is doing. Also, if you’re in a position to help the company succeed, you can have a direct impact on how much your shares are worth.
You can even own a part of the company if it uses one of the many employee share schemes out there. These schemes split the ownership of the company amongst its employees, giving them more incentive to work harder and improve its net worth.
In this blog post, we’re going to explain what shares are, why you should buy shares in your company, and list the different ways to acquire them. During the Coronavirus pandemic, whilst share prices of many companies are down, it may be the time to invest. So, let’s get into it!
What are Shares?
First off, for those of you who don’t really know what shares are or how they work, we’ll give you a little rundown. Shares (sometimes called equities) are tiny fractions of a company, so if you own one it’s the same as owning a bit of the company. Therefore, if the value of the company goes up, so does the value of your small fraction.
You can either own shares yourself or with other people in a collective investment or ‘fund’. If you own the shares directly, you become a shareholder. There are two ways to make money from being a shareholder:
- The company grows and becomes more valuable, improving the value of your stock with it;
- Or, some shares pay you part of the company’s profits each year in the form of a dividend.
You’re unlikely to get a dividend if you own shares in a small business. They’re usually a riskier investment, as their value often fluctuates more than large companies.
Reasons to Buy Shares in Your Company
With that in mind, here are some reasons to buy shares in your company:
- Real growth: unlike fixed-income investments, shares don’t expire, and you can maintain your stake in a company for any length of time you like. They also offer access to real asset growth as the company becomes more valuable.
- Low maintenance: you don’t have to put that much effort into owning stocks. Sure, you have to watch them, but it’s not like investing in property where you need to make repairs and renovate to maintain its value.
- Inflation-proof: inflation can significantly reduce the value of your savings. If you buy shares instead of putting your money in a bank, share prices actually have the potential to rise faster than the prices of goods.
- Job satisfaction: some people find meaning in what they do, can see the bigger picture, and are actively working towards a higher-paid job position. Others, however, find it hard to care about their job, and don’t have any incentive to progress. If you buy shares in your company, it feels more like you’re a part of it and you might shoot for the stars to have more influence over the money you’ve put in.
- Discounted purchase price: often, company shares are offered at a discounted price to encourage employees to invest. The discount can even be as high as 15 percent, which makes the purchase less of a risk from the get-go.
How to Buy Shares in Your Company
Okay, okay, that’s all well and good, but how do you actually buy stocks in your company in the first place? It’s time to tell you how to get on this ride.
Employee share ownership allows employees to buy shares in their company, to the benefit of both parties. There are lots of types of share schemes, and it’s not always as easy as just ‘buying’ a share.
Employees share ownership plans are the most common form of employee ownership in the UK. In fact, there are over two million employees owning shares in their company through a share scheme. The three main ways to buy shares in one of these schemes are:
- Share option: employees are given the option to buy shares at a future date, with a price that is set on day one. This gives the employee a chance to buy stock at a low price if the price of stocks goes beyond the price set out on day one.
- Share gifting: also known as a free shares scheme, the company gives shares to an employee free of charge, but they are normally held in a trust structure until they are released to the employee.
- Share purchase: this is the simplest way to buy shares; you just buy them outright from the company, usually at a discounted rate.
Tax-Advantaged Employee Share Schemes to Get on Board With
Employee share ownership has been promoted by every government party since the 1970s. Because of this, there are now four tax-advantaged share schemes as a result of that promotion. With this in mind, here are the five tax-advantaged schemes you can buy shares in if they’re offered by your company:
Save as You Earn (SAYE)
The company offers employees an option price which can be up to 20 percent lower than the price on the market. Those who join the scheme can choose a contract period of 3 to 5 years, where they save a monthly amount of between £5 and £500 from their post-tax salary.At the end of the contract period, the savings are used to buy shares at the option price. If the price of shares have gone up in that time, the employee makes money, but if the shares have gone down in price, the employee loses nothing and gets all their savings back.
Company Share Option Plan (CSOP)
The company can allow each employee to buy shares worth up to £30,000. No discount can be given on the market value of the shares, and it usually takes three years before the options can be taken up. CSOP is a discretionary share option scheme that can be used as an all-employee scheme, to give employees who otherwise wouldn’t be offered shares the chance to buy them.
Share Incentive Plan (SIP)
The company can choose whether to offer free shares, partnership shares, matching shares or dividend shares. Under free shares the company can gift up to £3,600 of shares to each employee every year.
Under partnership shares, employees can buy shares of up to £1,800 from their pre-tax salary every year. Matching shares can be given for each partnership share the employee owns. Dividends from past years can be used to buy new shares every year.
Enterprise Management Incentives (EMIs)
A company with assets of less than £30 million and fewer than 250 full-time employees can offer options of shares up to a value of £250,000 per employee. This is designed to help smaller companies attract and retain important employees, without having to pay them a large salary. The employee who buys the shares doesn’t have to pay national insurance or income tax on them.
Employee Ownership Trust (EOT)
This share scheme is an extension of the traditional employee benefit trust. For it to be viable, an EOT must hold a controlling stake in its company, and benefit all employees equally.
There is an income tax relief of £3,600 per tax year on employee bonuses, which provides an additional source of remuneration for them outside wages and salaries. It also helps to foster a culture of ownership and collective accountability for the performance of the company.
There are a lot more employee share ownership plans than this, but these tax-free options have proven to be the most popular for UK companies. The option to buy shares in your company is ultimately in their hands, so it’s best that you speak to them if you’re looking to acquire some.
Ready to Buy Shares?
In this post, we’ve covered the definition of shares, the benefits of having shares in a company you work for, and how you can buy shares in it. We also managed to provide a brief overview of the five tax-advantaged share schemes that your company might use. We hope this has given you a greater insight into what shares are available to you, and where to go from here.
Needless to say, there is a lot to be gained, both monetarily and performatively, from buying shares in the company you work for. Let us know, in the comments below, if you’ve ever purchased company shares, or if you decide to from this post. We’d love to hear your thoughts and stories!