Architype Limited

Posted on

A case study of how the founders of an architects practice have successfully arranged ownership succession for one of them by sale to an employee trust, combined with individual share ownership for two directors.

Why employee ownership?

Architype limited had two 50% founder shareholders, one of whom wished to retire. They decided that the transfer of the retiring shareholder’s shares into employee ownership would be the best solution for them. Their employees work collaboratively and employee ownership was considered to  be best aligned to their culture and future plans.  However, they also wished to enable two new directors of the Company to acquire a personal ownership stake.

How does it work?

The Company established an employee trust and obtained prior clearance from HM Revenue and Customs that any tax payable by UK taxpayers on the proceeds of selling their shares to it would be CGT (Capital Gains Tax rather than dividend income tax). The trust is not an employee ownership trust (EOT) and so the selling shareholder was subject to CGT on sale proceeds.

After professional advice had been taken on the Company’s current value, the Company’s retiring shareholder entered into a contract with the trust under which it agreed to purchase his shares.

The trust will be funded by the Company out of its profits, with the intention that the total purchase price will be paid within the coming years out of future profits.

Having acquired 50% of the Company, the trust then granted options (EMI options) over 20% of its shares to two directors, as to  10% each.  This enables them to purchase their shares at a fixed price {their value at the time the trust acquired them) when they have the funds with which to do so.

The trust retains the other 30% on a long term basis on behalf of the employees as a whole.

Who runs the trust?

 The trust is the Company’s controlling shareholder but this does not mean it runs the Company. This continues to be the responsibility of its directors.

The trust is run by its trustees, which comprise one employee, one director and one independent person from outside the Company. As the beneficiaries of the trust are the Company’s employees as a whole, the trustees have a duty to act in the best interests of the employees. In large part, this means ensuring that the Company’s directors are managing the Company effectively, ensuring that it generates strong profits which can be shared with employees and invests in the future. It also means fostering a Company culture which is positive and rewarding for it5employees and which encourages them to contribute wherever possible.

If you would like to explore how employee ownership or an employee share scheme might be introduced in your company, please contact us for an initial discussion.

We are happy to meet at our offices without charge or commitment and will be very pleased to hear from you.