Employee Owned Businesses

Date Added 20.05.13

Nuttal review

The Nuttal review of employee ownership, which was published in July 2012, made a number of recommendations, some of which were recently implemented (including changes to the Share buyback regime and the introduction of Treasury Shares for private companies).

One of the key recommendations was to raise awareness and reduce the complexities of employee ownership. In response to these recommendations, the Department for Business, Innovation and Skills (BIS) published on 1st May 2013 a draft pack of legal templates that businesses can adopt in order to become “employee owned”. These documents include:

–          Articles of association for the employee owned company;

–          A trust deed for an employee benefit trust; and

–          Articles of association for a trustee company for the employee benefit trust.

The government is keen to support the employee owned sector of the market, as companies with a significant employee ownership account for a combined annual turnover of more than £25 billion. This equates to over 2% of GDP. For example, John Lewis is the largest employee owned business in the UK at present, with some 84,700 partners (employees).

The logic behind employee ownership is that it provides both the business and its employees with greater flexibility and increased levels of employee engagement, which translate into increased productivity and innovation and, in turn, into increased economic growth. Employee owned businesses tend to plan more for the long term and are more likely to survive any difficult economic conditions.

Employee ownership can take the form of a direct employee ownership (i.e. the employees become registered individual shareholders of the business) or indirect employee ownership (where shares are held collectively on behalf of employees, usually, through an employee trust) or by way of combination of the two. In some instances, companies can also offer EMI option shares, which may qualify for both income tax relief on exercise of the option and for entrepreneurs’ relief on disposal. It is always important, however, for the relevant company and its director to take the appropriate tax advice before embarking on any course of action.

Typically, businesses that are on the brink of some major event (such as succession planning in a family run business, hostile takeover or insolvency) tend to convert to employee ownership. There is, however, also a significant number of businesses that set up from the start as an employee owned business.

If you would like to know whether your business could benefit from converting into an employee owned business, please feel free to contact our Corporate Law team on 01908 396 230. If you decide to convert your business structure to one of employee ownership (or indeed set up an employee owned business), our Corporate Team will be happy to assist you with structuring the transaction and ensuring that you realise a fair market price for your business

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