Why there’s no ‘catch’ when it comes to employee ownership | Brabners guest blog

Brabners is one of the UK’s leading independent law firms and an EOA supporter member, with more than 400 colleagues across its offices in Manchester, Lancashire, Liverpool and Leeds. Partner Stephen Hadlow is part of a team that helps corporate clients with their acquisition and succession strategies, with Brabners helping around a dozen companies a year transition to employee ownership. In this guest blog, Stephen shares his thoughts on why employee ownership is “very much a viable option” for business owners:

I was sat across from a client talking about employee ownership recently when he leant over and said ‘Stephen, what’s the catch?’ It’s a question I do sometimes get asked, but there really is no obvious barrier to becoming employee-owned and that’s always a good conversation starter.

Actually, owners will often think ‘why didn’t I know about this six months ago, this seems too good to be true’, or ‘there must be something someone is not telling me, there must be something which makes this really, really tough’.

It’s about offering reassurance early on in the process. Yes, there are boxes to tick – the culture needs to be right, strong management is key, fundamentally the business has to be profitable – and it’s a transaction that needs to be carried out carefully, with proper care and attention to detail. But without wishing to oversimplify employee ownership, it is a far more viable proposition than clients initially believe.

Possibly less so now because there is more information readily available, but going back two or three years, there was a sense employee ownership might be a scheme which the Revenue would look to attack in the same way as various relatively high-profile tax schemes have been scrutinised by HMRC in the past.

Also, clients questioned whether they would have to be something that they weren’t, that they had to try and pretend to be a particular type of company. It’s great to have a flagship name in the sector like John Lewis, but if you say, ‘oh, you can be like John Lewis’, then all of a sudden they think ‘well, blimey, how do we do that, we’re not John Lewis’. The growth and diversity of the sector has made a massive difference here as more and more mainstream SMEs adopt the model.

In fact, we speak to companies of all sizes, from all sectors – from construction companies to architects and everything in between – it’s not a one-size, one-sector solution. The flexibility and adaptability of employee ownership is one of the things we talk about very early on to show clients that it offers a perfectly viable succession plan which can be tailored to suit a business’s particular needs, and which represents a strong and effective business structure.

There are lots of really good employee-owned businesses out there and introducing clients to owners who have already completed the EO journey really helps them feel more and more that employee ownership now plays a significant part of the make-up of UK PLC, rather than a structure that is niche and not for them. When you say all this, you can start to see a business owner relax and feel ‘okay, I believe you’.

Case study

An example of one of the companies we have helped at Brabners was DJS Research, which was profiled at the 2021 EOA Annual Conference a few months after it completed its transition to employee ownership.

I met Danny Sims, the majority shareholder and founder of DJS Research at the time, at a previous EOA event and it was clear from the start that he was really serious about employee ownership as the right model for their business.

You could tell he’d already done a lot of research, he wasn’t coming at it half-heartedly, and we went through a thorough process with Danny. He was very interested to know all the details, understand exactly the nuts and bolts of the transaction and really took pains to make that transition work for him and for the company.

As lawyers, we steer the transaction, leading the project management side of it alongside the other advisers to take it from A to Z. This process worked really well with DJS Research, particularly because Danny wanted to be involved every step of the way.

So, that involved lots of talking with Danny from initially getting under the skin of what EO structure would be appropriate for DJS Research to then explaining the key details, providing feedback on the legal documents and acting as a sounding board for questions. As with the running of all our EO projects, it was very much a two-way process.

Our role is to make sure that the client is fully appraised of how employee ownership works, what’s in the legal documents and is the transaction tailored correctly for them. Explaining the importance of good governance is absolutely key here. Our aim is that when the documents are signed, at the point of transition to employee-ownership, there are no information gaps, they are completely comfortable with the process in every key detail and the business is set up to function effectively as an employee-owned company.

You can hear more from Brabners’ Stephen Hadlow, pictured, in Episode 5 of the EOA Podcast, which is about considerations before, during and after transitioning to employee ownership. Listen here >>

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