Today is Employee Ownership Day 2024 and ten years on from legislation coming into force, Nicholas Howie, Partner in our Corporate team says economic potential is only starting to be realised.
Lawyers at Lindsays have been involved in more than 20 deals in recent years where the control of businesses of all kinds has transferred to employee ownership. Thousands of people now work for companies where staff are the owners with research showing the total turnover of those enterprises operating across Scotland now in excess of £1.4bn.
Speaking about Employee Ownership Day today (FRI), Nicholas says the impact of employee-owned companies can only grow. He said: “It is 10 years since the legislation introducing employee ownership came into force with the objective of encouraging employee ownership. It seeks to achieve this by offering certain tax reliefs, including a capital gains tax exemption for shareholders who sell their shares to an Employee Ownership Trust (EOT) and the ability to reward employees annually with bonuses of up to £3,600 per year per employee.
“The increase in EOTs means we are now more widely realising their true economic potential, for individual employee-owned businesses, their workforces and the wider economy. What’s clear is that we can expect the transition to employee-ownership to continue to accelerate pretty rapidly over the coming years.”
Recent research commissioned by Co-operative Development Scotland (CDS) revealed that the number of employee-owned businesses operating in Scotland is 286 - an increase of 47% since 2022. They collectively employ a total of almost 7,600 people.
The Scottish Government has a target of having 500 employee-owned businesses operating across Scotland by 2030.
CDS says employee-owned businesses “are proven to be more resilient in times of economic crisis, more profitable and more productive”.
For a company operating under an EOT structure, the company is owned and controlled not by individual employee shareholders, but by the trustees of the EOT, who are required to exercise their control of the company for the benefit of its employees.
High-profile deals in which Lindsays lawyers have advised include those which saw Inverness-headquartered chain Carlton Bingo, Glasgow-founded music industry giant guitarguitar, the Scottish Gallery - Scotland’s oldest commercial art gallery - and the childcare specialists Kidzcare become owned by Employee Ownership Trusts (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.
Mr Howie, who is Glasgow-based, said: “The conversations we continue to have show a real appetite from companies, across all sorts of sectors, interested in becoming employee-owned.
“In the right circumstances, it is a change which can work for everyone. An EOT structure can preserve values and culture of the company and, to some extent, ensure business continuity.
“For staff benefitting from an EOT, they secure a controlling stake in their future, which has a real motivational impact. For those looking to sell their business, it allows them to secure the future of their company while also managing their departure in a tax-efficient way that works for them.
“The Scottish Government’s targets for employee ownership are ambitious but well on the way to being achieved.”
Across the UK, there were 241 verified EOTs in the UK during 2019, plus a further 34 which were established pre-2014. By 2023 that number was in excess of 1,000.
Published 21 June 2024.
