If you are thinking of transferring ownership to your employees, find out what an employee buy-out involves
What is an employee buy-out?
An employee buy-out sees ownership of a business transferred to its employees. This can take many forms, from wholly employee-owned co-operative businesses like Suma Wholefoods through to Gripple which operates employee share schemes where employees own a minority stake in the business.
A solution to ‘succession problems’
Business succession is an issue for the UK economy. Businesses that are often going concerns with established products, markets and customers close each year, when a new buyer is not found, resulting in the loss of jobs, businesses and skills in our local communities.
Employee ownership is a viable succession option for business owners. Business owners can get a fair price for the business and who better to pass your business onto, than the people who know it best, the employees.
The benefits of employee buy-outs
Passing ownership of the business into employee hands can:
- Protect loyal staff from redundancy, and stop businesses from having to close.
- Keep businesses in the local community, preventing unemployment and empty premises.
- Create more engaged, fulfilled workers.
- Improve productivity and innovation, and reduce absenteeism as commitment to the business increases.
- Help spread wealth by maintaining wage levels and introducing share ownership.
- Save the existing owner from negotiating with new or potentially adversarial buyers.
- Allow the business to take long-term decisions about its future rather than focus solely on succession.
In addition the Government has provided tax incentives to encourage the growth of employee ownership through two tax reliefs;
- A relief on Capital Gains Tax for owners when they sell a controlling shareholding in their Company to an employee ownership trust;
- An 'income tax exempt' bonus for employees of up to £3600 annually where an employee ownership trust owns a controlling stake (50% plus one share) in the employer Company.