Could your business benefit from the John Lewis approach?

When most people think about the employee ownership model, their thoughts immediately turn to John Lewis & Partners. The department store group is famous for being pioneers of the business model and they have shown that when employees take a stake in the business, it can create a positive culture.

HWB director Alan Williams works with a range of companies from start-ups to businesses with a turnover in excess of £25 million.

“Employee-owned businesses tend to have committed and motivated employees. Everyone feels like they are working for themselves (to some degree) as they have a stake in the business,” explained Williams.

In recent years, the booming tech start-up sector has embraced various forms of employee ownership models and the concept seems to be gaining traction, but it’s not just start-ups that adopt this approach. 

For business owners who do not have a clear line of succession for exiting their business, the employee ownership trust is an excellent model for exit planning. It allows you to successfully exit your business and provides the peace of mind that your business has been left in safe hands. 

“Businesses tend to move to an employee-owned model at different points in their life cycle – typically when the current owners are looking to sell or when the employees who want to be more involved in the business invest in a stake, perhaps through a management buy-out,” emphasised Williams.

If you are thinking about employee ownership in your firm, think carefully about how best to implement it with a view to the long-term benefits of doing so. 

A good place to start is by looking at how other employee-owned companies are structured. 

A key consideration is that all employees should receive an offer to participate in the employee ownership scheme on the same or similar terms.

While an employee ownership trust (EOT) comes with clear benefits and incentives for the employees of companies that implement them, it can also provide a very viable alternative for business owners looking to exit where there is no family succession planned or where the sale to a third-party buyer is undesirable. 

For the EOT to qualify for tax relief, the following qualifying conditions must be met:

1  The shares in question must be in a trading company, or the parent company of a trading group 

2  The trust must acquire a controlling interest (over 50%) in the company by the end of the tax year, being an interest which it did not possess at the beginning of that tax year 

It is also worth noting that selling shares to an EOT is free of capital gains tax, which is a desirable prospect for many business owners. 

“In terms of helpful resources, employeeownership.co.uk contains lots of useful information for UK businesses that want to move to an employee ownership model and we have produced a helpful factsheet which summarises the benefits,” added Williams.

For further information on EOTs or EMIs, contact Alan Williams:

023 8046 1201 

or visit the website:

hwb-accountants.com

Published in The Business Magazine