How to achieve an employee buyout

Employees can own a business in various ways, either directly or indirectly.

The choice is often determined by the size of the business and the number of employees. For example, a relatively small buyout might choose a co-operative model with an Industrial and Provident Society or a share company structure.

Another common method is to set up an employee trust that holds shares on behalf of the employees. This can be a very flexible solution. The trust might hold the shares forever, or distribute them to individual employees, or a combination of the two. It can buy shares back from employees who want to sell (for example, when they retire).

Putting shares into an employee trust can have tax advantages if the deal is structured in the right way. Using a trust may also be a good way of raising bank finance to acquire the shares. See financing an employee buyout.

Direct ownership

Employees can also own shares directly in their own individual names. One way is for employees to acquire shares over time, perhaps as bonuses or part of their remuneration. Some share schemes offer tax advantages to the company and employees. See set up employee share schemes.

Alternatively, the shares in the company could initially be bought by an employee trust which later distributes them. Or some shares could be owned directly by individual employees, while an employee trust owns and keeps the rest.

The employees may choose to form a co-operative that then acquires the business.