Employee ownership can build a stronger team

Employee ownership

Employee-owned companies tend to outperform other companies on a number of measures, also benefiting from more entrepreneurial and committed staff.

Robert Postlethwaite, Employee Ownership Conference 2017

Of all the 200+ companies I have helped and advised in the transition to employee ownership (in industries as diverse as biotech start-ups to old people's brick and mortar retirement homes) the benefits to the business have been so substantial - and both tangible and intangible.

What exactly does Employee Ownership mean?
  • A company can be treated as “employee-owned” where the whole, or a majority, or a significant part of it is owned by, or on behalf of, its employees
  • Employee ownership can be direct (by means of shares held by employees individually) or indirect (by means of a trust arrangement) or hybrid including elements of both varieties.

Watch the video below to hear Robert Postlethwaite explain what employee ownership means in more detail

Why Consider Employee Ownership?

Employee-owned companies tend to outperform other companies on a number of measures, potentially also enjoying more committed staff members, greater innovation and a more entrepreneurial culture.

The-Ownership-Dividend reports on the UK’s employee ownership sector: firms in which
employees own a substantial stake, and have a meaningful voice, in the business.

Employee ownership a succession planning solution

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

What kind of employee ownership would work best for your company

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

Guide to becoming an Employee Owned Company

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

Employee Owned Companies in the UK

The number of employee-owned business in the UK is growing fast. With an increasing awareness that employee ownership can lead to enhanced productivity and improved performance, enabling the rewards of enterprise to be widely shared with all those who help generate them, more and more companies are choosing to make their employees owners.  Recognising this, and to encourage companies to do so, the government has created two tax incentives.

To see recent examples of companies we have helped transission to employee ownership look at these case studies

If you would like to find out about some other UK employee owned companies click here

Trust Ownership

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.

Employee Ownership Trust (EOT)
The Finance Act 2014 introduced two tax reliefs designed to encourage and support the creation and growth of employee-owned companies.
The sale of a controlling interest in a business to an employee ownership trust (EOT) will be entirely free from capital gains tax (CGT).
A more detailed explanation of how employee ownership trusts work and what you need to consider can be found here

 

Individual 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:

SIP

Save As You Earn (SAYE) Options

Hybrid Employee Ownership

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.

What is an Employee Benefit Trust (EBT)?

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

Hear from companies who have completed the journey with us

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

A video guide to employee ownership

  • VIDEO: What is employee ownership?

To explore how employee ownership could work for your company, call me on 020 3818 9420.

ROBERT POSTLETHWAITE, MANAGING DIRECTOR