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Employee Ownership Businesses in UK

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. One reason is because employees can hold shares in the business through a share scheme after the formation of a private limited company.

These are often called Share Incentive Plans or SIP. Using approved tax and Employee Share Schemes means you will usually pay less in the way of taxes.

Some types of business structures may need to change their legal structure so that they can sell off the shares.

Typical 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. The factors will be different from one businesses to another, but it can include:

  • An employees’ council or a similar consultation group.
  • A constitution defining the values of the company and its relationship with employees.
  • Having employee directors on the board having the same responsibilities as other directors.
  • Working with trade unions on certain issues such as pay and conditions.

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 for employees is available for anyone who wants 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