In association with Malcolm Hurlston CBE, chairman, Employee Share Ownership Centre
Although it has been proven that a business owned by its employees enjoys increased productivity and greater profitability, few business owners planning their exit consider employee ownership. Times are changing, however, as Malcolm Hurlston CBE, chairman of the Employee Share Ownership (Esop) Centre, explains.
In the United States employee ownership has been a mainstream alternative to selling a business to a third party for decades. There the Employee Stock Ownership Plan (Esop) allows departing business owners to defer capital gains tax, providing the key incentive to consider employee ownership alongside a conventional trade sale.
UK governments have supported employee ownership through tax-advantaged schemes since the late 1970s. But although over 10,000 companies operate plans, and some two million employees own shares in their company, there has been little to appeal to business owners who need to get a fair value to exit satisfactorily.
This has started to change thanks to the Employee Ownership Trust (EOT) established in the Finance Act 2014. For the first time, it makes economic sense to sell to employees. American style exits have never been closer.
A business owner selling to an EOT can benefit from full CGT exemption as long as the EOT ends up owning more than half and benefits all employees equally. An EOT, as opposed to an external buyer, will always have an appetite to buy and not involve giving out confidential information in the hope of a transaction. Employees can benefit from income tax relief of up to £3,600 a year.
It is impressive that in its few months of existence hundreds of EOTs have been created. The incentive to sell to your employees is now there and the Esop Centre, which brought the Esop to Britain, is spreading the message far and wide.
On Thursday September 14, I will be chairing a conference with the IoD that will explore both the EOT and all the other employee ownership opportunities available for SMEs. The transition to employee ownership may seem daunting, but our panel of expert speakers will be able to make it clear. It could benefit you, your business and your employees, both now and when you want to sell. Join us to see what’s right for your business now.
This full day conference will help you decide whether to introduce an employee share scheme or deepen existing employee share ownership in your company.
Find out more here