What is an employee owned business? FAQs

Employee buy-outs alleviate many of the risks of business succession and avoid many of the defects of alternative exit routes such as IPO’s and trade sales.

Employee ownership can achieve some of the key goals of effective succession plans. It can safeguard continuity, offer long-term sustainability, ensure a gradual transfer and realise the owners’ equity. 

Employee ownership is a form of business ownership where the employees hold a controlling share in a business, either through direct share ownership, indirect ownership (a trust or other vehicle) or through a combination of these approaches. 

The buy-out process should establish a fair and equitable value for your business through a diligence process similar to that which an external purchaser would go through. Ultimately, a business sale is determined by whether the needs of the seller(s) match the buyers’ willingness or ability to pay.

It may be possible to get a higher price from an external sale, but a sale to the employees will ensure a fair price, business continuity and a chance for the employees to grow the business in future years. 

Very. Employee Ownership Association statistics suggest that productivity, profit and sales have all increased across UK employee owned businesses in recent years. Employee owned businesses have performed better than comparable SMEs and proven themselves more resilient over the financial downturn. 

There are many reasons why employees may want to run your business. They may want to make a contribution and have  a say in how the business is run. By developing ideas and making a difference to businesses performance, employees can share in the success of the business.

Employee Ownership can mean a big change in approach and mindset for some employee groups, but the benefits can be enormous. 

If you are considering a move to employee ownership, you can take a number of steps to prepare your employees. Start by considering the skills and ambition in your existing staff members. This will help you evaluate their training needs, start sharing strategic decisions and delegating tasks.

You should encourage  all staff members to participate in the development of the organisation through open communication and incentives. Moving towards an ‘open-book’ approach to managing the business is also a great way to prepare for employee ownership. 

 Reasons to consider employee ownership

Many business owners expect to be able to sell their businesses when they retire. Employee ownership ensures that the business is taken over by people with an interest in developing, building and sustaining it. And, selling to the employees can be more palatable than selling to a competitor! 

Many family businesses have succession problems where the upcoming generations do not want to take over the business. Selling the business to employees could be considered as an opportunity to pass on the business to a ‘wider family’ of employees who have just as much invested in its success. 

Business owners may wish to leave the business before retirement age, but take a monetary amount corresponding with the value they believe they have added to it. The employees may be able to group together to purchase the company and add further value to it. 

Business owners may want to leave the business but will often feel a responsibility to their employees and to the community the business is based in. Often they will still live in that community even though they have retired.

Employee ownership allows the employees to take control of their company and their jobs. The ownership structure will also make it very difficult to sell the company to an external buyer, ensuring that the company, and the jobs, stay in the local area.

Would you like to speak to somebody about employee ownership?

Please contact Business Wales by calling 03000 603 000 and quoting ‘EO2016’. We will be happy to arrange an informal discussion with one of our Social Business Wales employee ownership experts. 

Find out how employee ownership can root your business in the community.