Co-operative employee ownership involves employees in key decision-making. They own a majority stake in the business and it operates for its employees' benefit.
Co-operative employee ownership
This means that the business:
- Operates primarily for the benefit of all of its employees, not just for a select few. It needs to be commercially viable, but profit is not the sole driver, instead it should provide employment opportunities now and in the future, good terms and conditions, opportunities to share in the profits generated and, depending on the type of business, do good in society.
- Involves employees in key decision making – decision-making should be pushed down the organisation as far as possible, and employees should be consulted on key decisions that will affect them and the future of their business.
- Is wholly or majority owned by a wide spread of its employees – the business should be at more than 51% owned and controlled by the employees, or be working towards this via a phased sale to employees. Anything less than this means that ultimately the purpose and long term future of the business might not be aligned with the employees’ interests.
Getting to 51%
A business can become co-operatively employee-owned (51% ownership stake) at different stages in the buy-out process:
- Sale of a majority stake (where the owner sells a majority stake (over 50%) to the employees in one transaction). This type of transaction usually requires external finance and/or an element of owner deferred consideration.
- Phased sale: where the owner sells their ownership stake in the business over a period of time. A phased sale can take up to 10 years, sometimes longer, depending on the withdrawal expectations of the owner and the performance of the company. The time period can either be agreed in advance or it can be a rolling process based on the performance of the company and the available cash to fund the purchase of shares on an annual basis.
Employee buy-out checklist
Thinking about transferring ownership of your business to your employees? Our checklist outlines ten key questions around employee buyouts to help you understand whether this is an option for you.
Co-operative employee ownership is not just about getting over the 51% shareholding target. Here are some of the differences you’d expect to see in co-operative employee buy-outs:
- One member one vote
- Maximum individual shareholding provisions
- Requirement to sell shares if an employee leaves the company
- Provisions to ensure key decisions i.e. appointing Directors, sale of the business, acquisitions, should go to shareholder approval
- Employee representatives on the Board
- The presence of an employee ownership council (suitable for larger businesses)
- Employee elected trustee position
- The presence of an employee ownership council
- Provisions in the Trust Deed that guide the trustees to ensure the business operates for the benefit of its employees
- A combination of the direct and indirect ownership options