Virgin Money, the bank part-owned by Sir Richard Branson, is to float in a move that will return part of the once-nationalised Northern Rock to the stock market and result in each employee receiving £1,000 in free shares.

The flotation, which could value the 75-branch bank at up to £2bn, will require Virgin to hand a further £50m to the taxpayer under terms agreed by Virgin when it bought part of Northern Rock from the state in 2011 for £747m.

Each of the 2,800 Virgin Money employees - some 1,800 of whom used to work for Northern Rock - are to be handed £1,000 of shares while £150m of cash will be raised for the business.

If the business is valued at £2bn, Virgin Money’s chief executive Jayne-Anne Gadhia could be in line for an award of shares worth £5m. She is entitled to a maximum award of shares over the next 18 months worth up to 0.25% of the value of the business when it floats. The amount will depend on the value of the business when it floats and she may not receive the maxiumum amount. Finance director Lee Rochford, hired from Royal Bank of Scotland a year ago, is also in line for a payout.

Virgin Money said it will now have paid a total of £1bn to the taxpayer, which includes further payments to the government since it bought Northern Rock. However, the flotation of a 25% stake in the bank could force further scrutiny of the price paid for Northern Rock by the Virgin consortium, which includes US investor Wilbur Ross. Branson’s Virgin Group owns 47% of Virgin Money, with Ross owning about 45% and the rest by other investors. It is not immediately how much they intend to sell off at the flotation.

Gadhia, who tried to buy all of Northern Rock before it was nationalised in 2008, said the sale represented good value for taxpayers after Northern Rock was split in two in 2009. The most troublesome parts remain taxpayer-owned through the state’s UK Asset Resolution holding company.

“Taxpayers got their money back and more,” she said. “As a result of the float (taxpayers) get more than £1bn from us and get profits coming off UKAR and the Northern Rock assets we didn’t acquire.”

Gadhia said the bank was ready for the stock market and the additional scrutiny this would entail. Virgin Money has 2.8 million customers, has just launched a basic current account and has expanded into credit cards through the acquisition of a portfolio from MBNA.

“Over the last three years we have transformed our business. We have expanded our product range, increased our customer numbers, grown our balance sheet and enhanced our profitability. Our decision to take the business public marks just how far the company has come,” she said.

“I don’t have anything to hide,” said Gadhia. “We should not be embarrassed by scrutiny,” she said. Her pay has been disclosed at £1.1m and it has not yet been announced how many shares she will sell. Disclosures in March shows she had 270,382 shares and 408,000 share-type instruments locked up in a phantom scheme linked to performance in the future.

Gadhia said Virgin Money would be able to start paying dividends in the fourth quarter of 2015 – a pledge that may attract investors who are being asked to back a number of bank flotations. Aldermore is floating while Lloyds Banking Group is selling off TSB while other banks are also coming to the market.

“Our capability to deliver growth at meaningful scale, the quality of our balance sheet and our absence of legacy issues makes us stand apart from other banks, and these strengths give us the potential to deliver ongoing returns to our shareholders through both capital growth and progressive dividend payments,” she said.

The flotation is taking place as the industry faces an inquiry by the Competition and Markets Authority and when the government is keen for so-called challenger banks to take on the big four – Lloyds, RBS, HSBC and Barclays. Sir David Clementi, the outgoing chairman, said he thought the business had a good future. “We have built a safe, sound and secure bank supported by a strong board,” he said.

Clementi is being replaced by the Pearson chairman Glen Moreno.