Covid-19 : Could the fall-out of the pandemic fuel the revolution in employee ownership?
Douglas Roberts, Director in Lindsays Corporate and Commercial team, believes that more employees will become owners of the companies they work for as firms seek to ensure greater resilience in the wake of the coronavirus crisis.
Douglas has advised on more than 10 Employee Ownership (EO) deals which have been completed in the past few years. He is working on a number of EO deals which are expected to complete in the coming months and is certain that a greater number will emerge again as businesses evolve as a result of the pandemic.
The EO model plays a valuable role in the economic recovery from Covid-19, rooting local jobs and investment, improving business performance and enhancing benefits for staff.
There are different levels of EO, from share options to selected members of staff to the employees or a trust owning 100% of the company. Due to legislation introduced in 2014, most EO deals involved the process of more than 50% of a company’s shares being transferred to the staff of that company. This is typically done by entrepreneur or family-owned businesses which have no obvious succession plan. They also attract strong tax benefits.
Douglas Roberts said: “The impact of coronavirus has exposed the need for businesses to have greater financial resilience. Employee ownership provides that, meaning it will undoubtedly become even more prevalent as companies stabilise their position and plan growth as part of post-pandemic plans. We are helping clients with a number of EO deals and are currently dealing with a number of enquiries. We expect demand to increase.
“Holding a stake in the place you work creates a different mindset among staff – and I’ve heard throughout coronavirus how working to a common purpose has spurred innovation, performance and productivity. A recent survey of employee-owned companies by Ownership Associates reported that 73% of them believe their EO model will ensure they see the Covid-19 crisis out. These are factors which many businesses, particularly family ones, cannot afford to overlook.
“We are already seeing real changes to the relationship between workers, employers and government – meaning that the influence of employee ownership should grow as the economy is reset to ensure it’s fit for purpose.”
Employee ownership is not a new concept, but its popularity has grown in recent years.
Lindsays – alongside Co-ownership Solutions – advised Edinburgh-based IT consultancy Quorum, through its transition to EO, which was completed in March last year (2019). The company employs 93 members of staff.
Since the outbreak of Covid-19, the Quorum team has been working flat-out to extend the remote access capabilities of its clients (including Lindsays) and to support business continuity plans which have allowed companies to operate from homes. Leaders believe being employee owned has had a positive impact on performance.
Andrew Watson, Co-Founder and Managing Director of Quorum, said: “Becoming employee owned has really strengthened the positive culture and values within Quorum. That sense of ownership has seen the team really pull together during these extraordinary times. People in Quorum truly care about the future of the company and in ensuring we all do our best. We’ve been so proud of the effort that our employees have put in.
“As an employee owned company our leadership team openly communicate with all employees regularly regarding the effect the pandemic is having and what our business plans are to support our own business and our clients.”
As well as greater resilience, a move to employee ownership can also attract significant tax benefits for sellers.
Douglas explained: “When a company transitions to employee ownership then, subject to meeting certain requirements, the shareholders who sell pay no Capital Gains Tax. Due to Entrepreneurs’ Relief, most shareholders pay CGT at 10% which means that someone selling a company for £1 million, for example, walks away with an additional £100,000. Recent changes to CGT make this even more attractive.”
Douglas Roberts, the author – a Director in Lindsays Corporate and Commercial team.