An employee owned company is totally or significantly owned by its employees. Employee ownership is the fastest growing form of business ownership in the UK.
An increasing number of business owners planning retirement are arranging for their employees to take over ownership of their firm, and entrepreneurs creating new businesses are seeing the advantages that employee ownership can bring for business growth. This is done through the creation of an Employee Ownership Trust.
Download our essential guide to Employee Ownership Trusts (EOTs)
What is employee ownership?
A business is generally “employee owned” where the whole, a majority or a significant part of it is owned by or on behalf of all its employees
There are three main forms of employee ownership, it can be direct (shares held by employees individually), indirect (shares are held in a trust) or a hybrid of the two.
Here are links to guide pages for each of these:
A combination of trust and individual ownership (hybrid)
Generally, trust ownership will be simpler both to set up and run. But this does not make it the automatic best choice for all companies. We will help you decide which route to employee ownership would work best for you after a detailed discussion about your company and plans.
In 2014, the government introduced two new tax reliefs intended to encourage more companies to adopt employee ownership. In the years since then over 470 UK companies have become owned by an employee ownership trust, mainly as part of an ownership succession plan for their founders, but they also include public-service spin outs, start-ups, ownership change as part of growth and expansion plans or as a route to recovery following insolvency or closure threat.
Watch the video below to hear Robert Postlethwaite explain what employee ownership means in more detail.
Why is employee ownership good for business?
Research shows that employee owned companies are stronger performing with employees who are more engaged and committed
It sounds obvious: sharing the rewards of your business’s success with employees will create a powerful incentive to engage in the business and work together to improve its performance. There will be a “win-win” from all angles.
What evidence is there for this?
The Ownership Dividend , a report sponsored by the eaga Trust and the John Lewis Partnership, supported and coordinated by the Employee Ownership Association and analysed by Cass and Alliance Manchester Business Schools and published in June 2018. found that employee ownership delivered benefits for business, individuals and the wider economy.
According to the Employee Ownership Association, during 2020 the top 50 employee-owned companies experienced a 6.9% mean growth in productivity compared with -1.0% in the UK as a whole. There have also been several long-term studies of the impact of employee ownership on business performance. They tend to show improved performance in companies which have a leadership style which fosters collaboration, listens to its employees and is participative rather than autocratic.
If you talk to people from employee owned businesses, you will often hear of significant performance improvements following their transition to employee ownership:
“A surge of ambition swept across the firm when staff realised they don’t have to just do what the founders’ mission was – they can run with it now … when that happens you get a ‘whoosh’ effect.” ABER INSTRUMENTS employee owned since 2011
“Since then, 3 years on, we have been a very successful employee owned company….People really appreciate the fact that they have this additional responsibility and certainty. Employee ownership is right for Mindworks” MINDWORKS MARKETING employee owned since October 2017
Not every company will enjoy such a dramatic performance effect and every business looking to enjoy an employee ownership dividend will have to work at it, it won’t just happen. But the evidence is clear: if you want to build a better business you should take a good look at employee ownership.
At this challenging time many businesses will have made their priority retaining short term viability and living day by day. If you’re thinking about the longer term in your business, this might include a reflection on the future relationship with your employees.
Read our thoughts on building a stronger more resilient business here.
How do I find out more about employee ownership?
Please do call us on 020 3818 9420 if you have any questions or would simply like an initial conversation about introducing employee ownership in your business, or email Robert Postlethwaite email@example.com or David Reuben firstname.lastname@example.org
The Employee Ownership Manual
Published in November 2019 and written by Robert Postlethwaite with Jeremy Gadd, The Employee Ownership Manual is a practical guide and reference book which explains in a comprehensive but approachable manner all the key legal, tax and practical issues that arise for a company becoming owned by its employees.
For more information and how to buy a copy click here
FOR MORE INFORMATION AND FOR ANSWERS TO YOUR EMPLOYEE OWNERSHIP QUESTIONS CLICK ON THE ARROWS BELOW
- More engaged and committed employees
- Building a clear shared purpose and collaborative way of working
- Ownership succession which preserves your business and its culture
- A stronger performing business
- A committment 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.
Employee ownership may be one of the greatest business succession solutions you’ve never heard of.
Establishing an employee ownership trust to buy out retiring owners is increasingly popular.
Companies in the news recently for transitioning to employee ownership include
- Richer Sounds
- Riverford Organics
- Aardman Animations (the makers of Wallace and Gromit)
Not only does it often solve the kinds of succession problem that many owners face, it creates a strong platform for continued success and growth through having engaged and motivated new owners and brings statutory tax reliefs for both retiring owners and employees.
To read more click here
Through a detailed investigation of your business and objectives, we will help you make the best decision.
There are three main forms of employee ownership:
- Individual share ownership
- A combination of trust and individual ownership (hybrid)
- Trust ownership
Generally, trust ownership will be simpler both to set up and run. But this does not make it the automatic best choice for all companies
Which of these will be the best solution will depend on your company and its employees. To help you decide click here for more information
Employee ownership is reported to be the fastest growing form of business ownership in the UK.
An increasing number of business owners planning retirement are arranging for their employees to take over the ownership and entrepreneurs creating new businesses are seeing the advantages that employee ownership can bring for business growth.
Whilst large businesses such as John Lewis are high profile examples of successful employee-owned companies, there is a large and growing number of smaller companies – in diverse sectors – that are also employee-owned.
To read a detailed guide to becoming an employee owned company click here
In November 2020 EO Boost, a virtual event was delivered by the Employee Ownership Association (EOA), it offered engaging learning and insightful discussions on what good employee ownership (EO) looks like – for individuals, businesses and the UK economy.
The content can be accessed by members of the EOA which some of the broader panel discussions being made available onYouTube.
Each day, EO Boost offered something for everyone, whether you’re just taking your first steps into understanding Employee Ownership or you’ve been EO for decades, there are sessions to meet your needs.
– Explorers of employee ownership
– EO businesses
– Supporters and advocates
– EO Advisers
In some employee-owned businesses, the ownership is indirect through an employee trust which owns all or most of the shares on behalf of employees as a whole, with no single employee ever holding shares personally. This is how companies like John Lewis and Arup have structured their employee ownership.
This form of ownership has the advantage of simplicity, as it avoids the need to transfer shares to new employees and buy them back from leavers or employees who simply wish to sell. Rather than being paid out to shareholders as dividends, profits can be shared with employees by way of bonuses. If the trust is a statutory employee ownership trust which owns a majority of the company, bonuses can be paid income tax free.
Our guide to becoming an employee-owned company compares individual with trust-based employee ownership.
Here, if you want your company to be employee-owned (that is, all, a majority or significant part of the company is to be owned by its employees individually) this will involve your employees acquiring shares personally (and being issued with a share certificate as evidence of their holding), so that they have direct ownership of part of the company.
Although trust ownership is simpler to set up and operate than individual share ownership, you may prefer the latter if, for example, you place a high value on personal investment by employees or the prospect of employees benefitting from capital growth if company performs well.
Our guide to becoming an employee owned company compares individual with trust-based employee ownership.
There are two tax-advantaged employee share schemes which can make it significantly easier financially for employees to acquire shares in their company:
A “hybrid” form of employee ownership combines individual employee ownership and trust ownership.
Employees will be enabled to acquire shares individually, but an employee trust will always maintain a minimum level of ownership. This approach is often chosen by companies which see strong advantages in employees holding shares personally, but which also see value in having a strategic shareholding held by a single shareholder. It can also have the advantage of reducing the number of shares in circulation and so minimising the potential need in the future to fund the repurchase of shares from employees wishing to sell.
Our guide to becoming an employee-owned company compares individual, trust-based and hybrid employee ownership.
An employee benefit trust (or EBT) is a trust under which property (very often shares in the company which the employees work for, but sometimes also cash) is held on their behalf.
In the past, employee benefit trusts have been used as income tax avoidance devices. Legislation has now closed this down, but EBTs have an entirely legitimate role in companies which have an employee share scheme or employee ownership (normally then as an employee ownership trust), in particular:
- The long term holding of a strategic block of shares on behalf of employees
- Buying shares from employees participating in an employee share scheme who wish to sell their shares (or have to because they are leaving their company)
An EOT is an employee benefit trust which has particular tax benefits
If you are unsure whether employee ownership is right for your company look at this list for examples from many and varying business sectors who are employee-owned
From the moment I was introduced to Postlethwaite by Capital for Colleagues (specialists in helping businesses fund employee ownership) I knew we had the right solicitors to help us manage and negotiate the transition of TensCare to employee ownership. Postlethwaite Solicitors were clear about the process and benefits involved and upfront about their fees.Neil C Wright, Managing Director, TensCare
To explore how employee ownership could work for your company, call me on 020 3818 9420.