Employee Ownership refers to businesses operating, primarily, for the benefit of their employees as owners. Employee owned businesses are wholly, or significantly owned by their employees.
What is employee ownership?
Employee ownership refers to businesses operating, primarily, for the benefit of their employees as owners. Employee owned businesses are wholly, or significantly, owned by their employees.
There are many successful employee owned businesses in the UK operating across a spectrum of industries.They range from very large businesses such as the John Lewis Partnership with over 89,000 ‘partners’ to smaller businesses such as Visilume with 6 employees –and of course pretty much any size in between.
Employee ownership delivers 4% of annual UK GDP and is the fastest growing form of business in the UK.
A growing body of evidence points to employee owned businesses achieving higher productivity, greater levels of innovation and resilience to economic turbulence. Employee owned businesses also benefit from a more engaged, more fulfilled and less stressed workforces.
A key benefit of employee ownership is the simplicity of the model and the flexibility that it offers. Typically, employee owned companies take one of the following forms (For more information about the different models of employee ownsership click below):
Direct ownership – Individual employees become shareholders of the business. The employees may become shareholders through the use of a tax advantaged share scheme such as a Share Incentive Plan. Indirect ownership – Shares in the business are held collectively on behalf of the employees through an employee trust. Employees become ‘beneficiaries’ of the employee trust rather than individually own shares.Hybrid – A combination of individual and collective share ownership.
When to consider employee ownership?
Typically, our clients move to an employee owned structure when the business owner is considering his or her business succession options. There are a number of reasons, including recent tax reliefs, which make selling to the employees an attractive option for the exiting owner. (For more information about our ’employee buyout’ service click here).
Business owners looking to grow their business and retain talent will often consider adopting some form of employee share ownership in order to give employees a real stake in the business and a vested interest in its success. (For more information about ’employee share schemes’ click here).
People starting new businesses might consider employee ownership as it allows them to share the successes, brings together a range of skills and capabilities, whilst also sharing the risks involved in starting a new business.
Some very successful employee owned and worker co-operative businesses have resulted from ‘rescue situations‘ where the business would have ceased trading had the conversion to employee ownership not taken place.
Whilst not always an option, or appropriate, if there is a viable business model and commitment from employees and other stakeholders a ‘rescue’ might be the perfect opportunity for an employee owned business that can sustain employment and a positive effect on the local economy. A similar situation might occur where a parent company makes a decision to dispose of a subsidiary or close a factory. The subsidiary or factory may be a viable business in its own right.
Employee ownership has also been a popular option for public services in England who have been ‘spun out’ of the public sector as part of the Government’s ‘Mutualisation’ programme.
Benefits of employee ownership
The partial ownership of a business by employees is not a new development. Many of the UK’s largest companies have some form of employee share ownership.
Indirect / employee trust ownership
The indirect model of ownership (often referred to as the ‘John Lewis’ model) is based on an employee trust owning shares in the business on behalf of the businesses employees (known as beneficiaries).
Direct / individual ownership
The direct ownership model enables employees to become individual shareholders of the business they work for.
Hybrid ownership is simply a combination of ‘direct’ and ‘indirect’ ownership.
How can we help?
If you are exploring employee ownership, we can help you to identify the most appropriate model to suit your objectives. We are happy to meet at client’s offices, or at our LONDON OFFICE, without charge or future obligation. Please contact us for an initial discussion.