Sharing ownership in your business with your team brings many proven benefits.
I implemented my first employee share ownership scheme over 20 years ago as I felt that it was unlikely that I could grow my business as I wanted without incentivising our fantastic and growing team to share my goals. When I sold my business 54 employee shareholders benefited from our success.

 

Many years later it is well known that there are a number of  significant benefits in implementing employee share ownership plans (ESOPS):

• Incentivise and motivate employees: proven to increase productivity & profitability 
• Recruitment and retention: a significant differentiator
• Identification and involvement: employees become more invested in the company and its performance
• Increase overall business value: one of the key drivers in sharing ownership

 

Over the years, I have helped a number of businesses I have been involved with to successfully implement ESOPS and in doing so they have incentivised their team and aligned them with their growth plans.

In all these cases a successful exit was achieved (for all shareholders) who by working towards the same goals, were able to significantly increase the value of the business and therefore the value to each shareholder. A true win-win.

 

It’s a subject that often comes up with our Pabasso – Peer Advisory Board Associates members and at one of our recent meetings held at Wizu Workspace in Leeds we were fortunate to have David Craddock join us to give us a detailed overview of ESOPS, why and when they were introduced by successive governments, the many different schemes available, the benefits of each plan and the overriding reasons why enlightened business leaders implement such schemes, along with budgetary costs to set up ESOPS.

We discussed ‘Approved’ schemes (approved by HMRC) which can be tax beneficial to the company and the participants and ‘Unapproved’ schemes which can provide the business benefits of an ESOPS but without the tax benefits associated with an ‘Approved’ scheme.

• HMRC Approved schemes include: EMIs, CSOPs, SIPs and SAYE
• Unapproved schemes include: Ordinary and preferred shares, Growth shares and Employee ownership trusts (EOTs)

It was emphasised that no one should implement an ESOPS simply because of tax benefits, it should only be done if it is the right thing for the business – a real consideration for those considering participating in EOTs!

Solid advice for anyone, hence the expression ‘Don’t let the tax tail wag the dog’

The costs of setting up an ESOPS can be minimal for a simple unapproved scheme rising to over £50k for a complex HMRC-approved scheme, the majority of these costs being attributed to the legal and accountancy advice required.

 

So sharing is caring – but it can also be extremely beneficial to all shareholders if implemented correctly, would you rather own 100% of a business valued at £X or say 80% of a business valued at £10X?