All business owners need to keep an eye on succession plans because it is inevitable for any successful business and circumstances can change quickly.

Passing on the business to a family member or your management team is a popular choice, as is a sale to a competitor. Closing the doors is obviously a less attractive choice. Recently a new option has come to the fore, being a sale to all the employees through a trust called an employee ownership trust (EOT). Recent research from Mazars showed that 40% of business owners are now considering selling to their staff. The model is flexible so the structure of the deal can be configured in a way that suits the specific business.

Could employee ownership be the solution to the future of your business?

In 2014 the UK government introduced new legislation to make selling to an EOT more attractive. If certain conditions are met then the sale to employees can be exempt from capital gains tax, which can be a huge saving to the selling shareholders. Also, the employees can benefit from an annual tax free bonus of up to £3,600 for each employee and this figure may increase soon.

This is not just about tax. Research has shown that there are huge benefits to all including higher retention rates, lower absenteeism and greater customer satisfaction. Staff can be motivated by having "skin in the game" which results in a much better workplace atmosphere. The culture of the business can be protected and local jobs retained. The sale process can be quicker, less time-consuming and confrontational, not to mention with reduced professional fees, than a traditional sale. This really can be a win-win for all involved and can make a huge difference to businesses, their former owners and the staff.

There are a number of conditions to be met, with the main conditions being:

  • Controlling Interest Requirement – the EOT must own a majority of the shares or voting rights
  • All Employees Requirement – all employees must benefit from the EOT, subject to limited exceptions
  • Equality Requirement – all employees must be treated equally, again with some exceptions; and
  • Trading Requirement – the company must be a trading entity and not an investment company

Employee ownership is not the perfect solution for all businesses but it is certainly an option worth exploring as you consider your succession plans.

Q&A

Q. Are pints of wine set to become legal?

An amendment has been proposed to introduce a new measure of 568ml (the fabled "pint") but it is also intended to add a 200ml for still wines and a 500ml measure for sparkling wine. There is no timeline for when the amendment may come into force. Does this mean your customers will be able to order a pint of wine? The answer will be yes, on the basis it is being sold in a container just like asking for a "traditional" bottle of wine for the table. It can then be decanted from bottle to glass in the usual way. What would not be permitted is selling a customer a pint of wine in a pint glass (whether stemmed or otherwise) as the 125ml and 175ml measures remain in effect.

Q. I've been reading about the ban on drip pricing and fake reviews – could this affect me as a pub and bar owner?

In short, yes. On drip pricing, the government has announced it will be cracking down on what it sees as "junk fees" such as mandatory service or booking charges which consumers cannot avoid, but which are added on towards the end of the sales journey. It wants to see those fees disclosed up-front. Pub and bar owners displaying customer reviews on their websites may also be caught by the new laws on fake and misleading reviews. These are expected to place businesses under a legal obligation to put in policies and procedures to manage the risks caused by non-genuine reviews. There is a lack of clarity on what the legislation will look like. We strongly urge owners of pubs and bars to monitor developments and ensure soon-to-be-published guidance reflects the nuances of business practices.  

This article was first published in Pub & Bar.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.