Responsible capitalism and Employee Share Ownership
A multitude of political and economic issues have been debated recently and the future is hard to predict.
One prediction we are making is that you will be hearing the phrase "responsible capitalism" a lot more.
In this context we can also expect that employee owned businesses will continue to become more common throughout the UK.
The employee owned sector already accounts for approximately £30billion of the UK's annual GDP.
John Lewis is probably the most famous "employee owned" brand, but there are many companies in our region which are employee owned. These include: Gripple, TransaveUK and Swan-Morton in Sheffield, Spectrum Community Health Care in Wakefield and Union Industries in Leeds.
Lupton Fawcett is an associate member of the Employee Ownership Association, which represents organisations which are employee owned or transitioning to employee ownership across the UK. We advise on the corporate, trust, tax and employment law and other aspects of whole or partial employee ownership, whether through direct shareholdings or indirectly through employee trusts.
We can advise and assist on getting the legal structure right, but the key ingredient is that of successful employee engagement. When done well this can result in far greater productivity and profitability.As the MD of one employee owned business recently put it "we went from having a sales force of 5 to having a sales force of 70 - that is everyone in the business".
Employee owned companies are engineered for long term stability and growth. They can be as commercial and competitive as any other business, but they exist for the benefit of all of the people who work in them.
The model is appearing in all sectors, but is particularly emerging in professional services, niche specialist manufacturing, healthcare and retail/distribution.
Interest in employee ownership as a succession strategy for business founders has been stimulated by changes to the tax rules, so that if there is a sale of a majority interest to a qualifying Employee Ownership Trust ("EOT") no capital gains tax is payable by the seller. Companies which are majority owned by an EOT can also pay tax free bonuses of up to £3,600 per employee per annum, although National Insurance Contributions still apply. For companies with a large number of relatively low paid workers this is a very attractive feature.
The growth of the sector has also resulted in increasing understanding from most banks of the dynamics of employee owned businesses and the emergence of specialist investors prepared to provide "patient capital" (combined with debt) over periods of five years and more to employee owned businesses.
Employee owned companies typically come into the existence where founders are looking to exit and want to preserve culture and values, to help drive growth strategies, in spin outs from the NHS and as start ups by a younger generation of entrepreneurs who see the world differently from traditional business models.
The strong ethical element that runs through employee owned companies means they are likely to be a key component in the growth of "responsible capitalism".
If you would like to know more about any aspect of employee share ownership, whether in the context of succession planning, a growth strategy, a spin out or a start up or any other context, please contact Jonathan Oxley.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.