Guest blog: employee ownership

An increasing number of businesses are considering employee ownership. Stephens Scown partner, Christian Wilson, discusses why

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Employee ownership is on the increase. More than 300 businesses in the UK are now employee owned, employing more than 200,000 people between them. The sector has seen 60% of its growth in the past seven years and continues to grow at more than 10% a year.

Today (Friday June 29) is Employee Ownership Day – a day for employee owned businesses like Stephens Scown to celebrate and raise awareness of the sector.

So what’s persuading a growing number of businesses to consider employee ownership?

Benefits of employee ownership

According to the Employee Ownership Association, employee owned businesses achieve higher productivity, greater levels of innovation and are more resilient to economic turbulence. They also have more engaged and fulfilled workforces. Its research also shows that customers are more likely to trust and purchase from employee owned businesses.

Our experience at Stephens Scown has been an increase in staff morale and productivity – and a real sense that we are all in this together.

The employee owned sector contributes between £30 billion and £40 billion to the UK economy and is larger than the UK’s agriculture sector. With all of that in mind then isn’t it time that we paid more attention to employee ownership?

The right time for employee ownership?

Moving to employee ownership is a big change for any business, but there are times when taking the plunge makes more sense.

Alongside company start-up, the next most practical time is likely to be when owners are looking towards succession or exit. The business could be sold as a trade sale, but some owners dislike the sense of having let go of their colleagues and friends to new owners who may have a very different agenda.

The owners might consider a sale to a management team through a management buy out. This allows for some continuity, as there is less likely to be a significant shift in the operation of the business and the former owners may still have a role to play. MBOs are a very common succession route, but if the buying team were expanded to include all the employees, in addition to the management team, employee ownership would be the result – this is sometimes referred to as an EBO (employee buy out).

An EBO may add a little extra layer of complexity, but in reality the structure is not significantly different to an MBO, with a management team agreeing the terms for the benefit of themselves and the employees.

Added incentive

As added incentives, Capital Gains Tax on the business may be zero rated (even better than the Entrepreneur’s Relief rate of 10%) and employees may be able to take a profit share in the business of up to £3,600 free of Income Tax.

Additionally, former owners tend to find that they maintain a role for themselves in the business that they nurtured, rather than disappearing off into the sunset/obscurity, helping to build resilience for the business and a legacy to be proud of.

So why should you consider employee ownership?

  • A trade sale to an unknown third party is unappealing.
  • Your employees are valued and you wish for them to share in the success.
  • You don’t wish to disappear off into the sunset just yet.
  • The business’s legacy is important and you wish to ensure that certain values are continued.

Employee ownership doesn’t necessarily mean handing over 100% of a business to its employees. It can be a percentage and phased over time.

Employee ownership is not for every business, but as a growing part of the UK economy, any well advised business owner should at least be aware of it and what it might achieve for their company.

Christian Wilson is partner and head of the corporate team in Cornwall at Stephens Scown LLP. He is one of the trustees of the firm’s employee ownership scheme and advises other businesses on employee ownership. Contact Christian on 01872 265100, solicitors@stephens-scown.co.uk or via www.stephens-scown.co.uk