We welcome new members to the Chamber, Postlethwaite Solicitors a boutique Law firm specialising in employee ownership and employee share schemes for over twenty years and who are, themselves 100% employee owned.
What is Employee Ownership I hear you ask!
Well, Employee Ownership (EO) is one of the fastest growing business ownership models in the UK, with employee owned business (EOBs) currently growing at a rate of 30% growth per annum.
There are now approximately 1700 UK businesses (mostly SME鈥檚) embracing EO and realising the various proven benefits for the business owner, the business itself, its employees and the wider economy.
Here Postlethwaite Partner, , explains what employee ownership is and why this ownership model continues to be adopted at pace.
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If you鈥檙e thinking about the various possible routes for business succession, selling your business to an Employee Ownership Trust (EOT) will often be a viable choice that should be considered alongside a third-party sale, MBO or liquidation.
Employee ownership through an EOT is increasingly being recognised as an attractive option for business owners seeking the best way to realise the value they have created in the business (with tax reliefs) and ensure continued long-term growth.
What are the benefits of an EOT?
For a private company owner wishing to retire, an EOT importantly provides two tax breaks:
- Those selling their shares may do so free of capital gains tax
- Pay annual bonuses to its employees free of income tax
The principal conditions for these breaks are:
- The EOT must acquire and then hold more than 50% of the shares in the company.
- If employees receive an income tax free bonus, they must all be included and on the same terms (the same applies if shares or cash is passed from the EOT to employees).
- The company must be a trading company (not an investment vehicle).
- The company must have a minimum number of employees compared with shareholders.
A transfer to employee ownership enables a company鈥檚 founders to realise the value in their company in a way which keeps its independence and so is more likely to preserve the best in its culture and values and offering peace of mind that employees have the prospect of a positive future.
The EO model places the business in the hands of the employees who already understand. It鈥檚 reported that EOBs drive employees to be 8-12% more productive than non-EOBs.
The benefits broken down for:
How is an EOT funded?
Normally, an EOT will acquire a controlling interest in a company from its current shareholders.
Commonly, a price will be agreed (based on an independent valuation) which must not be more than market value and payment will then be made in instalments.
Ther are a few options for how the EOT will be funded. Some businesses opt to fund the EOT by the company鈥檚 future profits, usually after an initial down payment funded from the current profits.听 Others may opt for financing. As the EOT becomes more popular there are a growing number of providers who understand and offer financing options for this type of transaction.
Who will manage the EOT?
An EOT is run by its trustees. Their role will not be to manage the company (this continues to be the role of the management team) but to ensure the company is being well led and in a way which maximises employee engagement and commitment. This is sometimes facilitated by the creation of an employees鈥� council.
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Join Postlethwaite鈥檚 upcoming employee ownership event at the Chamber's offices!
Postlethwaite will be hosting an employee ownership and financing event at the Chamber's offices on Thursday 19th September for business owners in the Manchester area. So if you鈥檇 like to hear more about EO and from business owners who have already done it, be sure to register below.
Link to register:
If you can鈥檛 make the event but would like to find out more about employee ownership, contact Robin Hartley for a free no obligation chat and get your questions answered: call 0203 38189420 or email info@postlethwaiteco.com.
*Stats from EOA鈥檚 (Employee Ownership Associations) People Powered Growth Report published in October 2023.