A tax advantageous partial business exit that also rewards your employees – interested? Stephen Thompson, Partner at Darwin Gray, tells us more.
What is employee ownership?
Employee ownership is quickly becoming a popular model of business sale, where a business is entirely or significantly owned by its employees. According to a recent report by the White Rose Employee Ownership Centre, the employee-owned sector in the UK has doubled since 2020.
As a business owner, employee ownership provides you with the opportunity to sell your shares to an employee-owned trust, which will essentially own a controlling stake in a company, held for the benefit of the company’s employees.
What are the benefits?
Employee ownership offers a number of benefits for employees, previous and current shareholders, and the business itself.
One notable benefit of Employee Ownership is the tax incentives for both you as a business owner and your employees. With an Employee Ownership Trust (EOT), provided that certain conditions are satisfied, selling shareholders will pay no capital gains tax. Employees can also enjoy “tax-free” cash bonuses of up to £3,600.
A business sale can be a complex and time-consuming process. The benefit of an EOT model is that there will be no searching for a buyer, which can help to minimise business disruption during the ownership transition.
As employees become significant stakeholders in the company following the transition, an EOT can help to not only improve work culture and employee engagement but also attract future talent and improve employee retention. In turn, it can also help to generate more innovation than non-employee-owned businesses as the model evokes more collaboration and enthusiasm amongst stakeholders.
Who is employee ownership for?
EOTs offer business owners the opportunity to sell shares to employees with the confidence that the brand will not be altered dramatically by the highest bidder. As a business owner, you will have the ability to negotiate an exit plan, choosing to retain an involvement in the business, or alternatively say goodbye all together.
Start-up companies will also benefit from employee ownership by attracting talented employees and creating a workforce of engaged, interested individuals.
In addition, not-for-profit organisations may even use employee ownership to reinforce the value of team members.
When should you consider employee ownership?
Employee ownership can be implemented at any time in a business, but it may be of particular interest to you if you are planning your exit strategy from a business that you have spent many years building up, including a valued and talented work force, in whose hands you wish to leave the business.