Chris Budd recently sat down with NextGen Planners Co founder, Rohan Sivajoti for the NextGen Planners podcast.
In this episode Chris talks to us about why and how he sold Ovation Finance to the staff at Ovation using an Employee Ownership Trust.
Here are some of the best bits from the episode:
“It’s really important to just start off by stressing that what we’re really talking about here is building sustainable businesses.”
Okay that’s really what this is all about and the ownership trust is a wonderful way to to achieve that.
But if somebody is building a business because they want to sell it off to somebody then turn off, this isn’t really for them and employee ownership trusts don’t do that.
So it does give an exit option and it does allow a way in for employees.
So the way it works?
I set up the trust and then I sell a majority of the company into the trust. First point there – it must be a majority so really what we’re talking about is transference of control.
So I set up the trust and sell my shares into the trust.
The shares are sold at an independent valuation.
The trust needs to pay me for the shares but of course a trust doesn’t have any money.
What happens is it does own the shares and therefore it will receive the future profit of the business which is then used to pay me over a number of years.
Those payments are capital gains tax free to me as long as certain conditions are met and HMRC give a rubber stamp of the scheme and that includes this issue of control thereafter or maybe even during that repayment period some or all the profit is used to pay to the beneficiaries of the trust which the employees.
So once I am paid out, all of that profit the trust receives is available for the employees to receive.
They understand that if they get over £3600 which is income tax free, the rest is treated as income.
So when we say employee ownership trust, a better phrase would really be indirectly owned and controlled by employees. But that’s not quite as catchy as employee ownership trusts.
The crucial point is the employees do not have to buy shares they don’t have to come up with any money. And that’s really really important point for me when I was doing this. “
What’s to stop the controlling stake upping their salaries and lowering the profits?
Yeah good question. A shareholders agreement basically.
What’s happening is the ownership is changing, the business doesn’t necessarily have to change at all.
The shareholders appoint a board and the board run the company on behalf of the shareholders which is the trust.
So if the shareholders don’t like the way that the board is running the business, the board can replace the board as a minority shareholder because I’ve retained a minority shareholder with Ovation.
I obviously am a little bit exposed and therefore there are share agreements in place to make sure that the company is run in a prudent manner.
As an employee owned company when this profit comes out how is it going to get shared amongst the employees?
If this topic and conversation interests you, you can listen to the episode in full here
We will also be welcoming the CEO of the Employee Ownership Association, Deb Oxley to talk about employee ownership at NextGen Planners Conference 2018. We think it is an interesting topic and we can’t wait to further the discussion.
Also, make sure you keep an eye out for Chris Budd’s book on the topic “The Eternal Business” and you can pre order here