Employee ownership in Scotland
By Graham Bell, Wright, Johnston & Mackenzie LLP
Employee ownership is the exit plan that safeguards jobs and improves employee engagement. When all employees have a direct and/or indirect share ownership stake, there are unlikely to be significant external shareholders and there will be organisational structures that promote employee engagement. This can include access to information, employee participation and active expression, a commitment to staff training, and a strong organisational ethos.
Why sell to employees?
One of the key advantages of an organised sale to employees is continuity. The terms of the buyout are largely within the owner’s control, and the sale avoids the commercial risk of disclosing confidential information to other potential trade buyers.
How does employee ownership work?
The vendor is bought out directly by the employees, or indirectly using an Employee Ownership Trust.
Direct ownership by employees can cause problems if some employees want to sell and others don’t.
Indirect ownership by an Employee Ownership Trust can facilitate the market for those who want to cash in the value of their shares. The Trust will organise an annual share valuation and then there will be a “deals day” to allow those who want to trade their shares within the internal market.
Trust ownership means that employees of the company know that the shares in the trust are held on a permanent basis on their behalf, have a collective voice through the trust in how the company is owned and governed, and can benefit from the profits that would otherwise be paid out to investors.
The company’s management still run the company, with the board of directors responsible for the success of the business.
Does employee ownership work?
It definitely has a good record of succeeding!
Here is a typical website endorsement:
“As an employee-owned company, our values are demonstrated by the commitment of our employees to go the extra mile in pursuit of customer satisfaction. Each employee has a vested interest in ensuring the Company continues to grow and remain at the forefront of the markets we serve.”
Graham BellGGI member firm
Wright, Johnston & Mackenzie LLP
Law Firm Services
Glasgow, Scotland, UK
T: +44 141 248 3434
Wright, Johnston & Mackenzie LLP is an independent Scottish law firm offering the full range of corporate, dispute resolution, and private client services. It is GGI’s sole Scottish member.
Graham Bell specialises in company and business sale and acquisition, banking and security, reconstructions (including via insolvency) and governance issues, such as a board’s relationship with shareholders.
Published: M & A Newsletter, No. 01 Autumn 2021 l Photo: pietrach81 - stock.adobe.com