Could employee ownership be the answer for your business?

PostedJuly 1, 2024

The Welsh Government were excited to announce a significant milestone in its own mission to increase the number of employee-owned businesses in Wales. The number of such businesses in Wales has doubled, reaching 74 almost two years ahead of their 2026 target.

While this initiative is partly aimed at keeping Welsh businesses in Welsh hands, employee owned business models do foster a sense of ownership and commitment among employees. Therefore, you might wonder if employee ownership could be a good ownership model for your business. Let’s look at some of the things you might consider.

Benefits of employee ownership

For businesses contemplating a change to employee ownership, the benefits are numerous:

1. Enhanced Employee Engagement and Retention: When employees have a stake in the business, they are generally more motivated and committed to its success. This can lead to higher productivity and lower turnover rates.

2. Preservation of Company Legacy: For family-owned businesses, transitioning to employee ownership can be a way to ensure that the company’s legacy and values are maintained.

3. Local Economic Stability: Keeping businesses locally owned helps sustain the regional economy and can prevent the adverse effects of external buyouts, such as job losses and the erosion of local business culture.

4. Resilience and Innovation: Employee-owned companies often demonstrate greater resilience and adaptability, as employees are more likely to contribute ideas and innovations when they have a direct stake in the outcome.

How to make the transition

Businesses interested in exploring employee ownership are likely to need some additional support, but here are the basic steps:

1. Seek Specialist Advice: There are different models of employee ownership that can be used, so it’s good to explore and understand the options so that you can determine the best fit for your business.

2. Understand the Financial Implications Employee buyouts can be structured in various ways, including direct share ownership or through employee trusts which can have differing financial effects. In addition if you are selling a business or retiring then you will also want to look at the tax implications involved.

3. Engage Employees Early: Communicate with your employees about the potential transition and involve them in the process. Their buy-in and enthusiasm will be crucial to the success of the new ownership model.

4. Plan for the Long Term: Consider the long-term governance and management structures that will support the business under employee ownership. This might include setting up a board with employee representatives or establishing committees to handle various aspects of business operations.

Transitioning to employee ownership is not only a strategic move to secure the future of a business but also a way to foster a more inclusive and motivated workforce.

As business advisers we have experience of many different ownership models and can talk you through the tax and other financial implications involved in changing structure. Please get in touch at any time and we will be happy to help you.