Sunday, July 3, 2022
BusinessEmployee ownership deals double across Scotland

Employee ownership deals double across Scotland

More Scottish firms than ever are making the move to becoming owned by their staff, an experienced adviser says.

Lawyers at Lindsays have been involved in almost twice as many employee ownership deals across the country so far this year than they were in the whole of 2021.

Speaking as part of Employee Ownership Day today (FRI), Douglas Roberts, a Partner in the firm’s Corporate team, says there are no signs of that trend slowing with the Scottish Government pushing for 500 Employee-Owned Businesses (EOBs) to be based in the country by 2030.

And he believes the rise will add another layer of resilience to the nation’s economy as businesses face up to challenges including rising costs.

Douglas Roberts. Picture supplied with release by Message Matters

Lindsays, which has offices in Edinburgh, Glasgow and Dundee, advised on five deals which saw companies become employed during 2021 – following on from 15 others in the previous four years.

The firm has completed nine Employee Ownership Trust (EOT) deals already this year, many of them breaking ground in new sectors.

Mr Roberts said: “We are seeing huge demand from companies interested in, then becoming, employee-owned. As well as the transitions we have completed so far this year, a number of other deals are in the pipeline. It’s really encouraging for the Scottish economy.

“Increasing numbers of businesses are realising that employee ownership can work for them. It’s clear from the companies we are involved with that this is a model that can work for any size of company.

“This is a model which brings benefits for everyone.

“For staff who become employee owners, they secure a controlling stake in their future. For those looking to sell their business, it allows them to secure the future of their company while also managing their departure in a way that works for them.”

Recent figures from Co-operative Development Scotland (CDS) revealed there are currently 195 EOBs operating in Scotland – 146 of them Scottish registered and 49 non-Scottish registered.

Deals in which Lindsays has been involved with so far this year include that which saw Edinburgh-based Kidzcare become what’s thought to be the first business in the Scottish childcare sector to transition to employee ownership.

Others include those which have seen Inverness-headquartered chain Carlton Bingo and Glasgow-founded music industry giant guitarguitar become owned by EOTs.

Organised by the Employee Ownership Association, EO Day highlights the economic and social benefits that can be achieved when employees have a stake and a say in where they work. The theme this year is #GrowEO.

Research after the 2008 credit crunch found that employee-owned companies outperformed non-EO companies – a factor which could prove important in the current financial climate.

Mr Roberts added: “The knowledge that staff in EO businesses have that their destiny is in their own hands can be a powerful factor in motivating them to ensure their business is successful and sustainable. They benefit directly from that success.

“As a result, they often stick together and work harder for each other. This encourages innovation, as well as improving performance and productivity. As the number of employee-owned companies grows, that will add an increasingly important layer of resilience to the Scottish economy.”

Employee ownership: Key facts

  • A business is defined as being employee-owned if there is an employee stake of at least 25 % of the firm with no majority shareholder.
  • 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 involve the process of more than 50% of a company’s shares being transferred to the staff of that company. This is typically done by entrepreneurs or family-owned businesses as part of their succession plans. They also attract strong tax benefits.
  • When a company transitions to employee ownership, subject to meeting certain requirements, the shareholders who sell pay no Capital Gains Tax. Due to Business Assets Disposal Relief (formerly Entrepreneurs’ Relief), most shareholders pay CGT at 10% on the first £1million of a sale which means that someone selling a company for £1 million, for example, walks away with an additional £100,000.

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