Employee Ownership: What is it?

Published: February 21, 2024

The economic contribution of employee ownership in the UK continues to grow, with over 1,650 organisations (as of Oct 2023) now operating under this model. Employee-owned businesses are proven to achieve higher productivity and greater levels of innovation; and are shown to be more resilient to economic turbulence. They also tend to have more engaged, more fulfilled and less stressed workforces… all important tenets of a sustainable business! As a Professional Services Member of the EOA (Employee Ownership Association), the Enrichyou team can help you transition and thrive as an employee-owned business.

Employee Ownership typically happens in one of the following situations:

• Business succession or ownership succession – private owners, such as an entrepreneur or family business, decide to sell to their workforce. The most common route into employee ownership.
• Growth & Expansion – Partners, owners, or managers might decide to broaden ownership to cover most or all employees, reflecting the need to attract, retain and motivate the most talented people.
• Public Service Spin-outs – these newly created businesses (sometimes called Mutuals and including social enterprises or community interest companies delivering public services) may choose an employee-led or employee-owned solution as part of their structure.
• Start Ups – as in the case of John Lewis, Arup Group or Scott Bader, the founder of a business opts for employee ownership at the outset of the business or later.
• Business insolvency or at threat of closure – employee buy-outs can prove an effective route to recovery for businesses that might otherwise fail.

And there can be major capital-gains and income tax advantages too…

Tax advantages include (for those selling) freedom from capital-gains and (for those buying), annual bonuses paid free of income-tax! Having said that, the process of Employee Ownership is an ‘evolution, not a revolution’ and can take several years to plan and implement… which is why it’s worth talking to us now.

Employee-owned businesses are either totally or significantly owned by their employees and can take one of three forms:

• Direct employee ownership – using one or more tax advantaged share plans, employees become registered individual shareholders of a majority of the shares in their company;
• Indirect employee ownership – shares are held collectively on behalf of employees, normally through an employee trust;
• Combined direct and indirect ownership – a combination of individual and collective share ownership.

Enrichyou UK is a ‘Professional Services’ member of the Employee Ownership Association; helping EOA members (and those exploring employee ownership) to develop the professional leadership and sustainable business management skills needed to thrive as an employee-owned business. We can also help signpost you to the right advisors for your business relative to what you are trying to achieve (and by when) – including specialist accountancy and legal services.

Contact us today for an informal chat about the steps required in considering Employee Ownership as a strategy for your business (including developing your management & leadership team), or download our Enabling Sustainable Performance brochure (View/Download) here.

 

 

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