Although it has been shown that a business owned by its employees benefits from increased productivity and greater profitability, employee ownership has rarely been considered when owners are looking to sell. Times are changing, however, as Malcolm Hurlston CBE, chairman of the Employee Share Ownership (Esop) Centre, explains.
In the United States employee ownership is a mainstream alternative to selling a business to a third party. There the Employee Stock Ownership Plan 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 there are almost 12,000 plans in operation, and some two million employees who own shares in their company, there was little to appeal to the business owner who needed a fair price.
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.
It is impressive that in its few months of existence more than 80 EOTs have been created. The incentive to sell to your employees is now there and it is my job as chairman of the Esop Centre to spread the message far and wide.
On 16 September I will be chairing a conference for SMEs at the IoD’s headquarters in London. The transition to employee ownership may seem daunting, but our panel of expert speakers will be able to alleviate any concerns you might have. Employee ownership could benefit you, your business and your employees. Join us to see if it’s right for your business.
Employee Share Schemes takes place on Friday September 16 at 116 Pall Mall.
Find out more and book tickets