An Alternative Succession Plan – Employee Ownership

It sounds incredible that successful UK companies, who employ thousands of people, may have a business shelf life. They are reliant upon either the existing directors living forever, or for the business being sold, uprooted or wound up.

I am afraid I come across these situations. Where there is no plan for a succession and so the jobs, intellectual property and the products all disappear.

• 30% of “family” businesses survive the transition from first to second generation ownership.
• 12% survive the transition from second to third generation.
• Only 13 percent of family businesses remain in the family over 60 years.

Yes, it is difficult. So, is there a way to mitigate this?

The traditional solutions are most likely to be a trade sale to a third-party or a management buyout (MBO). These involve negotiations and the likelihood of deferred consideration, detrimental effects on the employees and the surrounding community. Moreover, a trade sale may not be possible and the mangers may not produce the funds for an MBO.

So, is there an alternative? Employee ownership (Employee Ownership Trusts – EOTs) may offer a viable and achievable alternative to these traditional choices. Between 2020 and 2022, the employee-owned sector more than doubled in size, surpassing 1,000 employee-owned businesses. In 2022 alone, there were 332 new employee-owned businesses. As of June 2023, the total number of employee-owned businesses reached 1,418 – a 37% growth in the past 12 months.

Employee ownership has occurred in various sectors being.

• Professional Services – 39.1%.
• Manufacturing – 15.1%.
• Construction – 13.6%.
• Wholesale and retail – 11.4%.
• Information and communication – 8.1%.

Briefly here are some of the benefits of employee ownership for sellers.

• Attractive Buyers and a Fair Price – avoiding the stress of a third-party sale.
• Preservation of Culture, Values and Legacy – mitigating the risk in a third-party sale.
• Potential Tax Reliefs – no capital gains tax.
  And for employees.
• Financial Reward without Commitment – employees share in future profits without a financial commitment.
• Greater Opportunities – increased progression and a voice in shaping the future.
• EMI Scheme Integration – providing key employees with further incentives.

Such a decision by an owner needs careful consideration. One size does not fit all. Before a decision is made, would recommend a Feasibility Report. Amongst others there are two overarching requirements: will the business be able to afford the repayment of any outstanding consideration and will the management be able to deliver the cash flows so to do.

There are related articles on this subject on the Assynt website which can be found at; 

Employee Ownership Trusts

More About Employee Ownership Trusts

Comparing Employee Ownership Trusts

So, if you are considering a EOT please do contact me at awatkin@assyntcf.co.uk or on 07860 898452 to arrange a complimentary meeting where I can explain more.

Employee Ownership Trusts Webinar

For those looking for more information, Adrew recently held a webinar on Emplotment Ownership trusts which you’ll find below.

If after listening to this presentation, you would like a chat with Andrew, please send him an email awatkin@asyntcf.co.uk