Converting a business to an employee ownership model is an increasingly popular choice for many business owners, but how can you get it right for your business? Find out here…
If you’re a business owner, you should already be awareof employee ownership. It’s an innovative business model that allows employees to have a significant and meaningful stake in a business – both financially and practically.
For many businesses, converting to employee ownership may seem like no brainer, with the benefits seeming endless. There are employee share plan tax advantages, opportunities for growth or expansion, and a path towards a seamless succession to take into consideration.
However, employee ownership isn’t always a simple process, and there are plenty of steps that need to be taken to ensure that it is a success for your business. So, keep reading to find out more about how you can effectively transform your business model.
What is Employee Ownership?
Essentially, employee ownership is where employees are given a stake in a business. This will mean that employees contribute in a financial sense, as well as having a meaningful say in the way that the business is being run.
Financial stakes are likely to include holding shares through an Employee Ownership Trust or Share Incentive Plan. Meanwhile, having a say in how the business is being run could relate to something like setting up an employee’s council.
It’s important to note that all of the employees in a business should be offered the opportunity to participate in employee ownership, whether or not they are able to make a financial contribution.
What are the Benefits to Employee Ownership?
Improved Employee Commitment
The most immediate benefit to employee ownership is the improved levels of employee commitment you’re likely to experience. When employees have a stake in the way the business is being run, they are likely to be more motivated while carrying out their usual roles.
No Takeover Saga
If the future of your business is in doubt, it can have many knock-on effects, causing disruption at every level. This can be avoided altogether with an effective employee ownership model.
Tax advantages shouldn’t the only reason your business considers employee ownership, but they’re certainly a welcome bonus. Tax advantages are usually enjoyed through various schemes such as:
- Share Incentive Plan
- Save as You Earn
- Company Share Option Plan
- Enterprise Management Incentives
It may also be possible that employees receive up to £3,600 in annual bonuses that are not subject to income tax.
One of the biggest issues that coincide with major takeovers are the unavoidable cultural shifts that occur. That isn’t going to be an issue when it comes to employee ownership. If anything, the work culture that has already been established is only likely to grow stronger.
5 Tips to Get Employee Ownership Right for Your Business
- Understand What Type of Employee Ownership You’re Looking For
There isn’t a one-size-fits-all model when it comes to employee ownership. Rather, there are different types of employee ownership models which will be suit business who are looking to achieve various goals.
Employee ownership will usually take one of three forms. These are:
Direct Employee Ownership
This is where employees are registered as individual shareholders of a majority of the shares in a company. This is usually achieved by using one or more tax advantaged share plans.
Indirect Employee Ownership
Shares are collectively held on behalf of employees, which is normally achieved through an employee ownership trust.
Combined Direct and Indirect Ownership
A business chooses a combination of individual and collective ownership.
- Identify a Reason for Converting to Employee Ownership
If you’re converting your business to an employee ownership model, then you will need to identify the exact reasons for doing so. In many instances, businesses that fail to convert to employee ownership don’t have a clear strategy in place.
There are a number of reasons why your business may choose to convert to employee ownership. These include planning for ownership succession, business expansion, or to mitigate the threat of insolvency. Simply converting to employee ownership for the sake of it isn’t a viable solution.
- Obtain a Market Valuation for a Trust
If you’re selling shares to an Employee Ownership Trust, then you’ll need to make sure that you obtain a market valuation of the company so the sale price can be agreed.
Many businesses make the mistake of overvaluing the company, which could prove to be a sticking point. The purchase price will need to be paid by the company itself, which could place a drag on profits moving forwards.
- Don’t Make an Executive Decision
If you’re considering employee ownership as an option for your business, you’ll need to consult the people that are going to be at the heart of the conversion – your employees.
So, take the time to talk them through your plans and see if they have anything to contribute either way. By having thoughtful discussions, you might be able to clarify a few minor details, making sure that you tailor your employee ownership plan accordingly.
- Get Legal Advice
Employee ownership is a huge undertaking, and you won’t be able to make the transition a success without getting legal advice from commercial lawyers.
They can help you to review your current situation, what your intentions are and how you’re planning to achieve your goals. They can then offer practical advice that will guide your actions moving forwards.
Are You Considering Employee Ownership for Your Business?
If you’re considering employee ownership for your business, this guide should have given you a closer insight into what it might entail and how you can make it a success. There’s plenty to consider, so take some time to review your options before you decide that it is definitely the right approach to take.
Have you got any more tips when it comes to employee ownership? Feel free to leave a comment below so we can keep the discussion going!