A young professional bought shares in the private company he worked for.  Part of the Agreement for Sale and Purchase of the shares referred to him ceasing to be an employee of the company.  However there were no arrangements recorded in the sale documentation about leave and other matters relating to his on-going defined role working for the company. He took legal advice.

His legal advice was that his employment agreement should not cease, as that was what would cover leave and other entitlements for his role working for the company.  Being paid dividends as a shareholder of the company was in addition to this.


When an employee buys into a company they work for, they become a shareholder.  In most cases, they will remain an employee and will still be paid a salary, so their employment agreement will likely remain in place (albeit with some possible variations).  Employees and employers need to have clear discussion and documentation in place to record the ongoing employment relationship where an employee has become a shareholder.

If the new shareholder will no longer be an employee, then their employment agreement will need to be terminated.  Taking this step would be unusual, as generally an employee who has become a shareholder will continue to have a defined role within the company and be remunerated for it. 

It is also important to ensure that any directors and shareholders who have roles within the company have those roles clearly defined.  Often this would be reflected in a Shareholders’ Agreement, including any remuneration to be paid. 

Employment agreements sometimes include restraints of trade, particularly for more senior employees.  A restraint of trade is a restriction on an employee competing against the business for a length of time and in a particular kilometre radius after their employment ends.  It may also include not contacting existing clients of the business.  In general restraints of trade are difficult to enforce and may only be enforceable if they are ‘reasonable’ for the type of business involved. 

Often once an employee becomes a shareholder of a company, the existing owner/employer may want to add a “restraint of trade” to the new shareholder’s employment agreement, unless there is already one in the Shareholders’ Agreement.  There could be a conflict between the terms of the two different documents, and it is imperative that the paperwork makes it clear which one is to prevail.


Partnerships work differently to companies. Where an employee buys into a partnership rather than a company, once the employee becomes a partner they are no longer an employee. 

All arrangements in relation to leave and payments to them (which will generally be by way of drawings) should be recorded in the Partnership Agreement (or the document the new partner signs to record their agreement to abide by the terms of an existing Partnership Agreement).

Taking advice is key

If you are an employee who has bought into a business, or a business owner who has brought on an employee as a shareholder or partner, or are looking to do so, it is essential that you take legal advice from a lawyer experienced in this area who can make sure the intended employment arrangement is correctly recorded.


Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.