What are the benefits of employee ownership?
There are a wide range of extraordinary benefits to employee ownership, whether for the business, the employees, or the wider economy and society.
Employee owned businesses (EOBs) are more profitable, productive, and resilient. They also have happier, more engaged staff.
Is employee ownership right for my business?
Employee ownership suits a wide range of businesses. From very large businesses employing thousands of people, to small businesses employing just a dozen, spanning from healthcare and IT, to manufacturing and catering, EO helps businesses become great.
Whether EO is right for your business, and what form of EO would suit your business best, depends on your unique situation. Speak to one of our team to find out more, or read more about different types of EO and becoming EO.
EO sounds great, so why aren’t there more EOBs?
The employee owned sector has grown significantly in recent years. A decade ago, EO was relatively little known in the UK. Following EOT (Employee Owned Trust) legislation introduced in 2014, the number of EO businesses began to rise. As more people learn about employee ownership and its benefits, more businesses join the EO community. The eoa continues to raise awareness of EO and its benefits, support EOBs and those looking to transition to EO, and to campaign on behalf of the EO sector.
EO sounds too good to be true. What’s the catch?
EO has a huge number of benefits, which can sometimes almost sound too good to be true to exiting founders or business owners.
There are processes and procedures to go through to become EO, ‘boxes to tick’, and considerations to take into account to ensure that your business’ EO transition is successful. EO businesses also need to ensure they continue to embed Great EO practice for continued success.
EO is flexible and there are as many ways to ‘do’ employee ownership as there are employee owned businesses. But EO needs strong foundations – alone, it won’t cure a business in terminal decline.
Is a business still considered EO if it’s not 100% employee owned?
Yes. A business can still be employee owned even if less than 100% is owned by the employees. Structures vary depending on what works for the business in question. The eoa qualifies a business to be employee owned when at least a quarter or more of the ownership is held by or on behalf of the employees and channels are in place for them to exercise influence on the running of the firm.
While plenty of businesses using an EOT are 100% employee owned, many others retain other shareholders. These may frequently be the original founder(s) or owner(s) retaining a minority share, or external investors.
Do employees keep their shares after they leave a company?
In most cases for EO businesses in the UK, employees do not keep their shares once they leave a company. This is the case if the business is an EOT, as the Trust holds shares on behalf of the current employees.
However, there are many different forms of employee ownership, and it depends on the unique situation of the business. Where employees own shares directly, usually a business will buy back the employee’s shares – it all depends on the specific terms in the employee’s contract.
Do employee get a share in the profits of the company?
Commonly, employees will be able to receive some profit share in an employee owned business. The amount and form this takes depends on a number of factors, including whether the company’s financial situation (e.g. whether it is turning a profit at that time) and the employee ownership structure in the business. Each business will have its own way of determining what happens to profits, from investing back in the business to what portion can be used for profit share.
In companies with an EOT, a decision about when and how profit is shared needs to be clear and transparent. In some cases businesses might not be able to pay a dividend until deferred consideration (delayed payment) to the exiting founder(s) or owner(s) is fully repaid, others will be able to build in profit share well ahead of this. The Trust itself is an indirect form of ownership and therefore doesn’t directly pay profit shares – instead the business will normally award bonuses. Employees are eligible for up to £3,600 pa in tax free bonus.
Do employees have to have a role in governance to be EO?
An EO business should give employees a meaningful stake and a say in how the business is run. This includes being involved in decision making. How this involvement is enacted can vary between businesses – it may involves having an employee council, voting opportunities and/or employee representatives on the board.
Dive into eo Learn to find a course to improve employee engagement and develop employee voice.
Why are EOTs the most popular type of employee ownership in the UK?
EOTs were introduced in the UK in 2014. They offer a simpler way to transition to employee ownership than many other options, and also offer financial incentives for the exiting business owner, as well as tax free allowances for employee dividends.
Is employee ownership just a form of tax avoidance?
EOTs offer a financial incentive to exiting owners. However, a business must demonstrate meaningful employee governance when it becomes an EOT.
Do companies ever stop being EO after they’ve transitioned?
It’s rare, but sometimes businesses will undertake an onward sale. A small number have done so in recent years, normally with significant financial benefits for all employees involved.
Why would a company choose to not be 100% employee owned?
EO is flexible, and the model can be adapted according to the needs of the business. Many EO businesses are 100% employee owned, which can be a fantastic model, but it won’t work for all businesses. In some EO businesses, the founder(s) or previous owner(s) might want to retain a minority stake for legacy purposes, for example. In others, the business might seek external investors to support the company and its continued growth.