There are 3 main approaches to selling your business to your employees. The approach you take will depend on what you expect from the move to employee ownership, your business or exit strategy aspirations and what your employees expect from ownership of the business.
Employee ownership is normally based on an allocation of shares that represent the employee’s interest in the company. As per any share holding, 51% share in the company represents a controlling interest.
Approach 1 - direct share ownership
Employees are allocated, or allowed to purchase shares in the company. This gives them direct ownership of the shareholding and the voting and dividend rights attributed to those share types. Limits can be imposed on how, where and when shares can be bought and traded [case study].
Approach 2 - shares kept in trust on the employees behalf
A proportion of shares in the company are held in the trust on behalf of the employees. The employees do not own any shareholding directly but will nominate employees to be directors of a trust company to represent their interests. This is often referred to as the ‘John Lewis’ model as it works in a similar manner to that in which the partners in John Lewis and Waitrose exercise ownership of the retail giant [case study].
Approach 3 - a hybrid approach
A mixture of an employee owned trust and individual share ownership is used. The trust approach ensures that all employees are represented and benefit from ownership. The option (or obligation) to purchase shares ensures that employees have a real investment in the business. This approach has been particularly well used in Gripple and its parent employee owned company Glide, a very successful manufacturer based in Sheffield. Aber Instruments is a scientific instrument design and manufacturer in mid-Wales which also utilises this approach [case study].
Would you like to speak to somebody about employee ownership?
Please contact Business Wales by calling 03000 6 03000 and quoting ‘EO2016’ and we will be happy to arrange an informal discussion with one of our Social Business Wales employee ownership experts.