The process of setting up an employee share ownership scheme begins with the company deciding why it should be put in place at all.

If it is to be used as a staff motivation and retention tool, it would need to be designed to encourage employees to stay with a company, which might mean making it unattractive to sell shares within a certain period. This might mean opting for an unapproved scheme.

If the main requirement is to provide profit for employees in a tax-efficient manner, the Revenue approved scheme, although restrictive, offers significant tax breaks.

Professional legal advice should be sought on the different schemes available and what would suit the company. It is also important to help protect the company's position if employees leave. Any regulatory approval should be obtained, which might mean Revenue approval or the approval of shareholders.

Once a scheme is drafted, finalised and established, the product should be presented and explained to employees, a process usually conducted by the human resources and finance departments.

It is important to note, for example, that share options are different from shareholdings. When employees are granted options under a share option scheme, they do not usually have to pay upfront. Instead, they will only pay on exercising their options at a particular time in the future and at a particular price. On exercising their options, the shares can either be retained to enjoy shareholder rights in the company or sold.

Although employee shareoption schemes are suitable for publicly quoted companies, private companies and Irish subsidiaries of foreign firms, private firms will need to devise proper exit mechanisms. The share valuation for private companies must be agreed with the Revenue because there is no ready market for the shares.