What Is Employee Ownership?
Published: June 23, 2023
The economic contribution of employee ownership in the UK continues to grow, with over 1,300 organisations (as of Dec 2022) 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 sustainable 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.
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.
The major 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.
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 that will be needed 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, or go to the Employee Ownership Association website FAQ’s section to find out more.