City firm Paisner & Co claims to have set up the first statutory employee share option scheme (Esop) since Government reforms to Esop legislation in the 1994 Finance Act in May
The scheme involves Tullis Russell, a Scottish papermaking and specialist coating business valued at u37 million.
Paisners partner David Cohen says the reforms are important because the previous legislation was "unworkable" and "only a handful" of companies had introduced statutory Esops.
"The change introduced in this year's Finance Act make statutory Esops an attractive proposition for family-owned companies like Tullis Russell."
With Tullis, the voting equity will be held entirely by employees and two trusts.
* Law firm Malcolm Lynch has written a book for City lawyers advising employee-owned companies on staff and management issues.
'Management of employee-owned companies' aims to give legal guidance to employee directors looking after their colleagues' interests. A major element among these interests is the operation of Esops.
The Leeds-based firm specialises in employee ownership law. Partner Robert Postlethwaite, the book's author, says: "Vital to the success of any employee-owned company will be the development of a management style which encourages the involvement and participation of employees."
"An essential element of this is employee representation at two levels: employee-nominated directors and an Esop trust acting as a supervisory board."
The firm says successful employee-owned companies have proliferated in the UK and abroad including major names such as the John Lewis Partnership and Baxi Partnership.
In the US, United Airlines recently became employee owned in a deal between management and unions.
"Employee ownership will play an increasingly important role in the delivery of services," says the firm.