Employee ownership is thriving - find out if it can work for your company
Leading accountancy firm Dains is helping business owners create an ownership model that benefits all employees and helps secure their company's future success.
Dated: 25 June 2021 Author: Roy Farmer, Head of Corporate Finance, Partner
There are already over 700 EOT businesses in the UK.
When it comes to selling a business, many company owners can feel uncertain about where the future of their business is headed, or if they are making the right decision for its clients and staff.
Lots of traditional methods could come to mind, such as striking an ownership deal with a trade buyer or a management purchase - but there is another way to ensure the company lands in safe hands.
Having been established for over 90 years and with a 200 strong team of business advisors and accountants, Dains acts on behalf of some of the most innovative firms in the UK and offers services to meet all of their individual requirements.
And more recently, the accountancy firm has been supporting business owners who are looking for a reliable exit strategy or seeking to up-scale and change their company's structure, to consider investing in a progressive Employee Ownership Trust (EOT) model.
An EOT model can help make sure that the long-term values of your business stay in place, and that the people who work there share in its future success. There are very few restrictions on the eligibility of businesses which could become an EOT, and the employee ownership business model gives staff more say in how the company is run and its services delivered.
Transferring business ownership to an EOT model also has several potential tax benefits for both the company owner and their staff, such as potentially allowing a zero rate capital gains tax for the seller and a yearly tax-free bonus of up to £3,600 for each employee.
According to the Employee Ownership Association (EOA), there are 576 EOT businesses in the UK as of June 2021, and this number grew by 139 businesses in 2020.
As of January 2021, EOTs now also represent 1 in 20 of all private company sales across the country.
To mark EO Day and the national celebration of employee ownership in the UK on Friday, June 25, 2021, Dains will be helping to raise awareness of the impact employee ownership models have on the wider business community and national economy as a whole.
Roy Farmer, Head of Corporate Finance at Dains says: "The UK's EOT legislation was first released in 2014 to provide business owners with another option when considering selling their company or changing its ownership.
"The model encourages business owners to lock in value for workers when it comes to the progress of their company, as well as increase employment prospects and give staff a say in where the business is headed in the future as well."
Find out more about how Dains can help your business transfer to an employee ownership model.
How does an EOT company model work?
There's no one-size-fits-all business model when it comes to employee ownership.
Whether your business only has 10 employees or over 200, Dains can help to make the transition as smooth and efficient as possible.
EOT also works well for businesses that are involved in a range of sectors, including manufacturing, engineering, medicine, architecture, law, and other professional services.
The decision-making element of the business is also preserved as the company is still allowed to keep its corporate board, and ensure proceedings are governed in the most efficient and beneficial way.
In addition to making sure all business decisions take place with employee benefit in mind, the previous business owner is also allowed to keep a minority of their shareholdings as well, to take advantage of its future development and profits.
What are the benefits?
An EOT business model motivates and incentivises employees to do the very best for the business they work for to share a part in its overall success and expansion.
There is also a raft of benefits that both the business seller and its workers can profit from once the employee ownership model is in place:
Preserving values - Instead of transferring the business over to a third party who may not hold the same ethics and principles, an EOT model ensures the company is handed over to employees who are invested in its sustainable growth and progress. This also ensures the businesses' legacy and independence are preserved.
Tax-free gains - In addition to a tax-free bonus of up to £3,600 a year per employee, a business owner can sell a majority share in their company using the EOT in a transaction that results in an effective zero percent capital gains tax, subject to certain conditions.
Business influence - Employees working under a business with an EOT model can have a considerable influence on the businesses' decision-making process and ensure that its profits are generated for the benefit of the workforce.
Privacy - Transferring a business over to an EOT model is a highly confidential process up until the point the transaction is completed, ensuring no third-party gains access to valuable company information.
What Employees at Dains and clients have to say about employee ownership
Richard McNeilly, managing partner of Dains Accountants says: "Employee ownership is becoming an increasingly popular model, used by progressive UK businesses. Legislation to permit employee ownership has been around for seven years and each year we see more activity within high-quality businesses, such as Pennine Healthcare, which moved to EOT status earlier this year.
"This business has been in Derby for over 40 years and was established when the founder, Ivor Shaw manufactured a three-pronged walking stick to enable his disabled mother to pick up her knitting wool. During the past 12 months, the business has been a key supplier to the NHS, in the fight against COVID-19.
"The shareholders have created a fantastic legacy – the business is in strong financial health, has a talented workforce and an excellent reputation nationally and internationally."
Luke Fryer, CEO of Pennine Healthcare, added: "The team at Dains explained the benefits of employee ownership, which fits perfectly with the future of Pennine. We are delighted with the outcome for everyone involved and it is great to be able to access this specialist knowledge locally."
Danny Fantom, managing director of FC Laser Limited says: "Following our transition to employee ownership, all members of the company have an added incentive to push our business forward.
"Every member of the business has a vested interest in our success and this level of drive is passed onto every one of our clients."
Tony Brealey, Managing Director of Reabrook Limited moved the business into employee ownership in 2018 in an effort to reward loyalty and protect the next phase of ownership.
He said: “Reabrook Limited is a manufacturing business which started trading in 1968 under private ownership, which was then acquired by a large Plc and then transferred back to private ownership in 2006 with an MBO.
"The business employs over 200 staff who have been key in driving the business forward.
“After a lot of research we found the best solution was to set up an Employee Ownership Trust, so in 2018 a trust was set up which owns 100% of the shares in the trading business.
“The beneficiaries of the trust are current and future employees who will benefit financially from a share of the profits generated.
"It gives everyone in the business security, more engagement and involvement in the business plus the benefit of a profit share bonus which is tax-free up to the current government threshold.
“It has given customers confidence in knowing that the business will not change ownership and that relieves conflict of being acquired by a competitor and gives confidence of being managed by the same people, so it’s business as usual.
"We have even won additional business because we have created the trust and removed the uncertainty of who will be the successors.
“The business is managed day to day by the same people, but a trustee board oversees the bigger issues of investment, and this consists of two employee representatives and two trading company directors.
“The change of ownership structure has been really positive for all at Reabrook, and customer and supplier partners and we have seen some of our best trading performances since becoming an employee trust and look forward to continued growth over the coming years with the help of our engaged team.”
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