Rooted and resilient
The case for employee ownership in the Welsh private sector
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- Many business owners assume that selling their business to an external buyer is the only option available to them.
- There is increasing evidence suggesting that employee owned businesses out-perform firms with more restricted ownership structures.
- There is an opportunity to embed employee ownership in longer term SME development planning in Wales as well as positioning it as a response to acute succession issues.
- There is an increasingly broad acceptance that company ownership and corporate governance are closely intertwined with economic policy objectives.
- There is strong evidence to suggest that employee owned businesses out-perform companies with other ownership structures.
- The current focus on succession planning support creates a valuable opportunity to do this and ensure that appropriate support for SME owners who are interested in employee ownership as a succession model is made available.
Employee ownership is defined as ‘businesses which are totally or significantly owned by their employees’.
Traditionally, employee ownership can take one of three forms:
- Direct employee ownership –employees are individual shareholders with a majority of the shares in their company;
- Indirect employee ownership – shares are held collectively on behalf of employees, normally through an employee trust;
- Combined direct and indirect ownership – a combination of individual and collective share ownership.
There is increasing evidence suggesting that employee owned businesses out-perform firms with more restricted ownership structures. Between 2014 and 2016, the UK Top 50 Employee Owned Businesses’ combined sales figures had increased by 10.2%, to £22.6bn. In comparison, UK GDP as a whole had increased by 7.7% over the same period. Social businesses are businesses driven by social or environmental aims. In Wales, a large number of these are focused on improving a particular community or improving health and well-being.
Employee ownership offers a resilient business model with potential for stimulating sustainable wealth creation and equitable distribution.
Tax reliefs are available for the sale of businesses to Employee Ownership Trusts at market value. A range of finance options can help structure the transfer of ownership.
Social Business Wales (SBW) provides one to one support to businesses interested in succession planning and is the ‘go-to’ organisation for employee ownership support in Wales. The in-house team of experts can advise on a wide range of aspects that are relevant to the transfer of ownership of an SME to employees. They are able to support a consideration of the corporate finance, tax and governance implications of the transition process.
The team also provide the skills and expertise necessary to deliver the broad staff engagement that is required to develop an understanding of the requirements of an employee buy-out and carefully consider potential pathways towards the full transfer of ownership alongside the requisite governance structure.
Cabinet Secretary for Economy and Transport, Ken Skates said:
“This report helps to identify and raise awareness of the issues that face businesses in Wales in planning their future. Evidence show that employee owned businesses are resilient and more likely to grow in tougher economic times. As a Government, we are committed to working closely with businesses to help them to thrive and grow.
“As Wales has a high proportion of small and medium sized businesses it is important, through Business Wales and through Social Business Wales, that we are able to provide appropriate support to businesses so that they can continue to grow whilst staying firmly rooted in the community.”
This report was commissioned by Social Business Wales in partnership with Welsh Government.