Employee ownership means a significant and meaningful stake in a business for all its employees. If this is achieved then a business has employee ownership - it has employee owners.
A business in which a controlling stake is held by or on behalf of all employees is called an employee owned business.
Some employee owned businesses are conventionally structured with the employees owning shares directly through straight purchase or a through tax approved share incentive or share purchase options plan. Where there is some form of representative or democratic voice for employees, in line with international co-operative principles, an employee owned business can be classified as a worker co-operative. These operate with a commitment to principle such as the right for all employees who are eligible to become members of the co-operative and take part in its governance on a one member one vote basis. Some employee owned businesses are owned by a Trust which owns shares and acts in the interests of the employees as a whole.
Reasons for employee ownership include:
- Retirement – an owner is looking to retire and wishes to sell the business to the employees.
- Realisation of investment by business owner or by one of the business partners.
- Divestment, where a business wishes to sell off a subsidiary.
- Business rescue for a business in distress – saving a business that is poorly performing and possibly facing bankruptcy or liquidation.
- Public service mutuals, where public sector employees are bidding to take over the services they provide (often called public service spin outs). For more information, see the Mutuals Information Service on the GOV.UK website.
- Engagement mechanism – as a method of increasing engagement with and commitment from employeesto support an investment programme and secure external investors through an improved ownership structure.
For employee ownership businesses, the sources of funding are:
- Funding from the company - there may be enough current and predicted disposable cash within the company to finance all or part of the purchase price, either in one lump sum or over a period of years.
- Funding by employees - the employees raise funds from their personal resources.
- Gifting shares -where the owners, over a period of time, gift shares.
- Vendor finance - where an entrepreneur, management team or a family are selling a business, they may be prepared to take their cash over time.
- Loan finance.
- Mezzanine finance - this is funding from a finance house, which will take greater risk than conventional loan finance and expects a higher return.
In this section:
Useful links for information and resources on employee ownership
- Wales Co-operative Centre has published a report on employee ownership in Wales
- Social Business Wales - Business Planning
- Social Business Wales - Financing a Social Business
- The voice of employee owned businesses in the UK, Employee Ownership Association (EOA) and the EOA's publications about employee ownership and its advantages, including Employee Ownership: How to get started (download).
- Co-operatives UK has information on worker buyouts and a downloadable guide to worker buyouts: Simply Buyout.
- From the Department of Business, Energy & Industrial Strategy (BEIS), there is a guide on employee ownership.
- BEIS also has information on how the employee ownership model is being made easier and more accessible.
- BEIS has provided off-the-shelf toolkits to support employee ownership guidance and model documentation.
- The Employee Share Ownership Centre (ESOP Centre) informs, lobbies and researches in the interest of developing all forms of broad-based employee share ownership plans (that is, in which all employees in a company are able and incentivised to acquire shares in the company for which they work) in the UK and Europe.
- Engage for Success provide information and case studies about the effect of increasing employee participation.