Employee Ownership: The advantages?

In the past five years or so, over 400 UK companies have become owned by an employee ownership trust, mainly as part of an ownership succession plan for their founders.  Whilst in our current circumstances putting a succession plan in place may not be an immediate priority, the reasons to consider employee ownership remain compelling, and in fact for many businesses it could form a key part of a recovery plan.

In this newsletter we look at the benefits it can offer, and some key practical steps to take to help ensure success

Advantages

• Employees who are owners are more engaged and committed
• Builds a clear shared purpose and collaborative way of working
• Ownership succession which preserves your business and its culture
• A stronger performing business
• A commitment to the longer term
• Leadership succession can be implemented over time
• Retiring owners can be paid market value for their shares
• Tax reliefs for retiring owners and employees alike
• Enhanced returns for investors
• Employee ownership can be implemented at a pace which matches that of any retiring owners

Steps to help ensure success

• Don’t choose employee ownership mainly or purely for tax reasons without any serious commitment to how it can help build a better company
• Ensure that your senior leadership support the change
• Plan future profit and cashflow carefully, as this will be key to funding instalments of purchase price
• Prioritise strong and clear communication with employees
• If you plan to use the tax reliefs, ensure your advisers fully understand the conditions
• Plan properly for leadership succession
• Ensure that as a retiring owner, you will be able to let go
• Avoid creating significant individual employee share ownership.  This combined with subsequent high growth in share value may make it hard to buy out employees who eventually wish to sell or make it affordable to bring in new employees as shareholders
• Invest in training around employee ownership