How do I find out more about Employee Ownership?

There are many good reasons why Employee Ownership, in its various forms, is an increasingly popular business model in the UK. When employees share in the ownership of a business, their interests are aligned with those of shareholders.  This means that employees are more likely to think like owners, which can encourage them to focus on the success of the company as a whole – and when the business succeeds, the employees can benefit in the same way as the other shareholders.

There is strong evidence to suggest companies that embrace Employee Ownership attract the best talent, and encourage employee loyalty, commitment and motivation. Depending on the type of Employee Ownership model used, the business (and the employees) can also receive generous tax reliefs.

So, could Employee Ownership be right for your business? There are many different types that could be used for your benefit. However, with the enormous volume of information that can be found online, taking the first steps towards implementing an Employee Ownership model in your business can be a daunting and confusing process.

We have published an extensive volume of resources on Employee Ownership so you can get all the information you need from one specialist, reliable source. Here, we provide a very brief introduction to Employee Ownership and handy links to our resources to help you get started.

A brief introduction to Employee Ownership

Employee owned businesses are partly or wholly owned by their employees. There are three types:

1. Direct Employee Ownership/Individual Ownership through an Employee Share Scheme (also known as an Employee Share Plan):

Employees can acquire shares directly, or be given the right to acquire shares in the future by way of a share option.

If an HMRC recognised plan, such as Enterprise Management Incentive (EMI) or Share Incentive Plan (SIP) is used, significant tax advantages can apply.  This can make the plan very attractive both to the employees and the business itself.   Savings can apply to income tax, national insurance contributions (NICs) and capital gains tax.  Companies can also benefit from corporation tax relief and reductions in employers’ NICs.

Once employees own shares, they can benefit from dividends on their shares and share in the proceeds if the company is sold.

• Indirect Employee Ownership through an Employee Ownership Trust:

An Employee Ownership Trust (EOT) is a particular type of employee trust which typically holds 51% or more of the shares in the business are held on behalf of the employees.

EOTs are an attractive way of business owners managing succession because the sale of a controlling interest to an EOT is entirely free of capital gains tax.  This can be a very positive alternative to the traditional approaches of selling to a competitor or winding up the business on the retirement of the main shareholder. 

Instead the EOT can create a long term and sustainable solution for a business run in the best interests of all its employees.  An EOT controlled business can also pay income tax free bonuses to all its employees (up to a maximum of £3,600 p.a. for each employee). 

• A combination of the above

An EOT can hold 100% of the shares in a company, but it need not do so.  It is possible to operate tax-advantaged employee share plans alongside an EOT, as long as the EOT does not lose majority control of the business. 

This can create direct ownership for employees alongside the EOT, enabling employees to hold shares and receive dividends. 

Is Employee Ownership right for your business?

There are many scenarios in which Employee Ownership might benefit your business, such as:

• Growth – engaged, high-performing employees are the key to sustainable growth and expansion. Employee Ownership can empower and motivate employees and attract the best talent, ensuring that the future of the business is in safe hands.

• Succession planning – Employee Ownership allows business owners to pass on the business to their employees extremely tax efficiently.

• Start-ups – where cash is tight, using shares or share options can be a great way for a start up business to attract the best talent to help it grow.

• Tax benefits – governments of all political colours recognise that Employee Ownership is positive for the wider economy as well as individual businesses. Hence, there is a strong history in the UK of providing significant tax reliefs to encourage companies to embrace Employee Ownership.

• Keeping independence – when business owners wish to step back from a company or retire, it is often the case that selling to another company – often a competitor – is the easiest exit strategy. Using an EOT can create a positive alternative to this, ensuring the business maintains its independence in the future. 

Find out more about Employee Ownership

Whether you are considering share options for one key hire, or thinking about selling your business to an EOT, deciding whether to implement Employee Ownership can be a big decision.  RM2 has compiled a broad range of free resources to help you assess whether Employee Ownership is right for you, your company and your employees:

• Download our free information fact sheets. We have fact sheets about nine different types of Share Plan for you to explore.

• Use our Employee Share Scheme Selector questionnaire to find out what type of Share Scheme might be best suited to your business.

• Read about some of our client success stories.

• Register for our free webinars on Employment Ownership Trusts and Employee Share Plans. We regularly run our webinars so you can stay up to date with recent developments and ask us questions. We also have an extensive webinar archive where you can watch our previous webinars which range from introductory overviews to in-depth looks at different aspects of implementing EOTs and ESPs.

• Read our other Employee Ownership blog posts for topical discussions such as our research with the Employee Ownership Association on the Top 50 employee owned companies in 2021.

• Read our books, A Directors Guide to Employee Share Plans by Sarah Anderson and The UK Employee Ownership Trust by the RM2 Partnership, which provide comprehensive information about each respective type of Employee Ownership.

• Visit our Employee Share Schemes and Employee Ownership Trusts pages to find out more about the services we offer, read our FAQs, and discover how we help businesses across the country.

Consult an Employee Ownership specialist

Every business is different so seeking bespoke advice from an Employee Ownership specialist is essential. We are independently recognised as the UK’s most experienced team of Employee Ownership advisors. We have nearly 30 years of experience helping thousands of businesses design and implement Employee Share Schemes and have also helped over 60 businesses set up Employee Ownership Trusts since their introduction.

If you are interested in tailored advice on how Employee Ownership could be used for your benefit and/or the success of your business, contact us at enquiries@rm2.co.uk to arrange a call with one of our expert advisors.