Advice + Tax + Accounts for smart business owners.
May 19th 2021

Using employee ownership to build a great business

Employee ownership has been around for a long time, but the concept is becoming increasingly popular among SMEs nowadays.

Could an employee ownership model help you to build a better business?

Businesses such as John Lewis are famous for being pioneers of the employee ownership model. When employees own a stake in a company it can create a positive culture.

Businesses tend to move to an employee-owned model at different points in their lifecycle - typically at start up, when the current owners are looking to sell, or when the employees who want to be more involved in the business invest in a stake (perhaps through a management buy-out).

Employee-owned businesses tend to have committed and motivated employees; everyone feels like they are working for themselves (to some degree) as they have a stake in the business.

In recent years, the booming tech-startup sector has embraced various forms of employee ownership model and the concept seems to be gaining traction.

If you are thinking about employee ownership in your business, think carefully about how best to implement it with a view to the long term benefits of doing so. For example, you could start off with shares held in an Employee Benefit Trust (EBT) which could distribute shares to employees over time, or even retain them on your employees’ behalf. An EBT provides a stable, long-term structure for employee ownership. It can also make it easier to buy back shares when an employee leaves.

Another option would be to allow direct employee ownership through a share plan. This can allow both the company and its employees to enjoy some tax advantages through a Share Incentive Plan. Regardless of which route you take, it will be necessary to obtain some tax advice in order to set up the scheme correctly - contact us for assistance.

A good place to start is by looking at how other employee-owned companies are structured. A key consideration is that all employees should receive an offer to participate in the employee ownership scheme on the same or similar terms.

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