The UK Rules
'Follow the Regulations'
Employee Owned Businesses

Employee Ownership Businesses

Most employee owned businesses tend to be highly productive and innovative. That's because all employees own a 'significant and meaningful' financial stake in the company.

EMPLOYEE OWNERSHIP: This guide explains who can set up employee ownership, and how to do it.

You can find further advice and information about employee shares and business engagement.

All employees of employee owned businesses must:

1. Have a notable financial stake in the business (usually achieved by owning shares), and,

2. Have consequential influence how the business operates (called 'employee engagement')

As a rule, employee ownership can occur in three different formations:

  1. Direct employee ownership: This format uses one or more tax advantaged share plans. Employees become registered individual shareholders of a majority of the company shares.
  2. Indirect employee ownership: Company shares get held collectively on behalf of the employees. As a rule this occurs through an employee trust.
  3. Combined direct and indirect ownership: A combination of individual and collective share ownership.

Financial Stakes in Employee Ownership

Companies limited by shares will find it easier to set up employee ownership. That is because employees hold shares in the business through a share scheme.

These are often called Share Incentive Plans or SIP. Using an approved scheme means you will usually pay less tax.

Some types of business may need to change their legal structure so that they can sell off the shares. Examples would include a charity or a sole trader operation. Employee-owned firms may then operate as a co-operative.

Employee Ownership Business Engagement

Employee engagement means they must have a say in the day-to-day running of the business.

Of course, there are different ways of engaging employees into the operations. They will be different from one businesses to another, but it can include:

Employee Ownership Guidance and Model Documentation

You can study the government 'model documentation: for a company with employee ownership' publication. It has more information about the types of employee ownership and engagement. A separate guide is for employees who want to request a move to employee ownership.

You can also get further guidance on the tax issues around Employee Share Trusts. The documentation covers issues such as what happens when employees sell their shares.

Employee Ownership Businesses: Shares and Engagement