@InspireEO
@InspireEO
Structures,
Governance
& finance
Andrew Harrison
Co-ownership Solutions
Employee Ownership
Structures, governance and funding
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Definition of employee ownership
 Company primarily run for the benefit of the employees
as owners
 Not run for a single shareholder or outside shareholders
 Wholly or majority owned by employees
 Either direct, indirect or hybrid ownership structure
 But, employees must have ownership and with it control
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Two distinct parts to ownership
 A stake in the business – actual share ownership.
 An culture of ownership – employee involvement in the
business
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Employee ownership in the UK
 c£30bn annual UK turnover – 4% of GDP.
 Government call for ‘John Lewis’ economy backed up with tax
reliefs.
 28 ‘Nuttall Review’ recommendations.
 Top 50 EO companies report:
 4.6% yoy increase in sales;
 25.5% yoy increase in EBITDA;
 3.3% yoy increase in employee numbers;
 4.5% yoy increase in productivity.
 EOA aim 10% GDP by 2020.
 EOA membership doubled since 2014.
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Wide range of ownership structures, but
essentially 3 scenarios:
Direct ownership – employees become individual shareholders of
the company they work for (normally using tax advantaged schemes
such as Share Incentive Plan (SIP).
Indirect ownership – shares held collectively on behalf of
employees through an Employee Benefit Trust (EBT) or Employee
Ownership Trust (EOT).
A hybrid of the above – indirect and direct.
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
DIRECT OWNERSHIP
Company
INDIRECT OWNERSHIP
Company
Employee
trust
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Trustees in capacity as
shareholder hold Board of
Directors to account for their
management of Anyco Ltd as an
employee owned business.
Trustees of Anyco Ltd
Employee Trust
Anyco Ltd Board of Directors are
responsible for setting and
delivering strategy of the
business and ensuring
performance targets.
Board of Directors of Anyco Ltd
Anyco Ltd
Employee
ownership council
Senior management team of
Anyco Ltd
Employees of Anyco Ltd
Senior management team
ensure that operational activities
are completed and lead
teams/departments of
employees.
Employees elect fellow
employees to any of:
•Employee ownership council
•Board of Directors of Anyco
•Trustees of Anyco
Employee ownership council
acts as a conduit between
employees and the Anyco Board
of Directors.
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Employee reward
Employee Ownership Trust (EOT)
‘new’ income tax exempt bonus.
Up to £3600 annually per eligible employee.
Lots of restrictions:
 Equality requirement
 12 months service
P&L chargeable.
Levels out differences with dividends.
Direct ownership
Dividends
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Selling to employee ownership
 Sale of shares in whole or in part.
 Immediate or phased
 Sale to:
 An Employee Benefit Trust (EBT);
 a discretionary trust for all employees
 An Employee Ownership Trust (EOT);
 a type of discretionary trust introduced by FA2014
 A Share Incentive Plan (SIP);
 specific statutory trust as defined in Sch2 ITEPA2003
 Employees directly.
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Funding the sale to employee ownership




The Vendor
The Company
The Employees
The Bank
 Senior debt
 Co-op and Community Finance, C4C, eaga Trust
 Mezzanine debt
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Tax relief for owner
 Exemption from capital gains tax:
 Must sell 50% + 1 share to EOT
 Proceeds from sale treated as neither ‘gain nor loss’
 Limited participation rule 2/5
 Connected persons and settlor excluded from benefit
 Benefits multiple vendors.
 ER
 10% rather than 18% or 28%
 Individuals, not company
 Must hold 5%
 Employee/director
 Held for at least 12 months
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Cash £ (deferred?)
Shares sold to EOT
EOT
Company
Profit share – subject to profits. (CT relief)
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Selling to a Share Incentive Plan (SIP)







SIP is an ‘all employee’ share scheme.
Purpose is to facilitate direct ownership
Free Shares (£3600)
Partnership Shares (£1800)
Matching Shares (up to £1800)
No PAYE or NIC at point of award/purchase.
Company funding Trustee of SIP generates CT relief:
 At date of award/purchase of Shares; or
 Up front if Trustee funded to acquire 10% within 12 months.
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Developing an ownership culture
“Co-ownership is the starting point but its power only clicks in
when combined with the full engagement of employees in the
‘co-creation’ of value – the CoCo companies.”
CoCo Companies. Work, Happiness and Employee Ownership – Richard Reeves 2007
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
 Successful enterprises are ones in which employees are active
‘co-creators’ of value, rather than passive followers.
 Clear leadership, decent management and humane policies can
help but it is an uphill struggle to get people to go ‘the extra
mile’ when the additional money generated flows into other
hands.
 People who are co-owners of an enterprise are inescapably
invested in its success of failure!
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Co-ownership is only half the story
 It is when a structure of ownership is combined with a culture
and systems of co-creation (consultation, information-sharing,
employee forums) that organisational performance moves into a
new gear.
 Co-ownership and co-creation weave together to deliver a new
way of doing business and a better way of doing work.
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Gallup research identified 3 clear groups of employees:
 Engaged
 Not engaged
 Actively disengaged.
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Whether or not an employee was engaged depended
upon their relationship with their immediate
supervisor/manager
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Essentials of Great Management
1. Setting clear expectations so partners know what is expected of
them.
2. Caring for partners as people.
3. Partners doing what they do best and receiving praise and
recognition.
4. Asking partners for their views and letting them know that their
opinions count.
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
Our approach - 4 key areas




Buy-in by business leaders/managers.
Ensuring understanding of EO.
Effective employee voice.
Embracing employee engagement.
© Co-ownership Solutions - An Employee Ownership Association approved specialist advisor
@InspireEO
Sean Elliot
Network ROI
Direct Share Ownership at Network ROI
About Network ROI
• Network ROI provide high-quality
managed IT support, IT Project,
telephony and connectivity services.
• We work with organisations from the
public, private and charitable sectors
across a range of business sectors.
• Most of our clients are headquartered
within the Central Belt of Scotland, but
we support offices and clients further
afield.
Why choose Employee Ownership?
Personal Goals
Business Goals
• Financial security
• Protect employees’ future
• Planned & controlled exit
• Reward employees’ contribution
• Phased journey to retirement
• Organic & sustainable growth
• More family & personal time
• Protect client relationships
• Network ROI legacy
• Protect service & culture
• Management succession
• Incentivise employees
Why Direct Share Ownership?
• Personal stake makes ownership feel more real – greater sense of
ownership
• Familiarity with share ownership – many people own shares in companies
• Feels like an extension of personal savings plans or investments
• Tax efficient way for employees to invest in company & for company to
reward employees
• Growth in shareholding value directly linked to performance of the
business
• Flexibility in terms of different ways employees can acquire shares
EO Structure
• Share Incentive Plan (SIP) combined with Employee Benefit Trust (EBT)
Employees get direct stake
Trust to hold controlling stake
Tax efficient
Trust provides market for shares
• Initial free share agreement
• SIP agreements run annually
• Accumulation shares allocated on ‘buy 3, get 1 free’ basis
• Open share purchase offered annually to allow employees to maximise
HMRC limit
How is EO working for Network ROI?
• All employees participate in SIP (from min to many at max per mth)
• First dividend payments made in 2014
• More empowered and more informed workforce
• Employees have greater awareness of business objectives
• EO is a key differentiator when it comes to pitching for new business
• EO has seen potential leaders emerge from within the business
• Employees seeing their individual shareholdings grow in value
In Conclusion
• Employees and business owner working to the same, clear business &
financial objectives – understood by all involved
• Direct share ownership focuses attention on personal stake in the
business
• Helps encourage virtuous circle
 Retention of key employees
 Productivity
 Working ethics & business culture
 Achieving objectives for the benefit of all
If you’d like further discussion, you can e-mail me at
sean.elliot@networkroi.co.uk
Network ROI
Stobo House,
Midlothian Innovation Centre,
Roslin, EH25 9RE
www.networkroi.co.uk
@InspireEO
Neil Watt
Fitwise
Neil Watt,
Managing Director,
Fitwise
Management Ltd
All your association needs,
under one roof
What Comes to Mind
When I Say Hybrid?
What Does Hybrid Ownership Mean?
• A mixture of both direct and indirect
ownership
• Both employees and a trust directly own shares
for the benefit of employees
Current Hybrid Ownership
Position in Fitwise
Shareholding Split
2944, 6%
2057, 4%
• Total number of ordinary shares
50,000
• John and Maggie have transferred all
of their remaining shares to the EBT
• 44,999 shares are held in the EBT on
behalf of all Fitwise employees
• The remaining 5,001 are held in the
Share Incentive Plan with 2,944 of
these already purchased by
employees
• Intention is to create an employee
owned company. 80% shares held by
EBT, 20% shares owned by
employees. Max individual
shareholding 5%
• Loan notes to John and Maggie will
be issued by EBT for deferred
consideration over 4/5 years
44,999, 90%
EBT
Staff Puchased
SIP Balance
What About Governance – Fitwise Trustee and
EED Structure
Fitwise Trustee and EED Structure
Fitwise Employee
Benefit Trust (EBT)
Fitwise Share
Incentive Plan (SIP)
Employees
Fitwise
Management
Trustees Ltd
USE OF CORPORATE TRUSTEE
FMTL
FML Employee Benefit
Trust
FML Share Incentive Plan
EBT and SIP are both ‘trusts’ and require ‘trustees’.
Corporate Trustee is created to act as sole Trustee of both the EBT and SIP and manage their
affairs.
Fitwise Management Trustees Ltd:
Controlled by a board of directors who act as Trustees.
This board normally comprises 1 x employee elected trustee director, 1 x trustee director
appointed by the Board of FML and 1 independent trustee director selected by other 2
trustee directors.
Incorporated as Share Based Company with ‘special share’ held by employee representative
to ensure FMTL is never controlled by board of FML Ltd.
Benefits of Hybrid Ownership
• Best of both worlds – benefits of both direct and indirect models
• Majority of shares can be held in the employee benefit trust to secure
long term employee ownership
• Protects company from sale or takeover. Any future sale requires a
ballot of employees
• As the majority shareholder the EBT can determine the outcome of all
major decisions
• Fitwise senior management is held more accountable to FMTL and
employee shareholders
• Employees are represented on Boards of both FML and FMTL
• Employees feel engaged and have a real stake in the business
• Employees have legal right to attend and vote at AGM’s, benefit from
share dividends and share in the future success of the business
• Encourages we’re all in it together mentality
Are There Any Drawbacks?
• The fact that the EBT, as majority shareholder
can outvote employees in every situation can
be seen as undemocratic
All your association needs,
under one roof
@InspireEO
Q&A
Thank You
@InspireEO