'For us, this is about building a legacy for our team'
Following a period of rapid growth over recent years, there are now nearly 300 employee-owned firms in Scotland. These concerns employ more than 7,500 people and turn over in excess of £1.5 billion collectively.
And the number of Scottish firms where staff hold majority stakes, chiefly through employee ownership trusts (EOTs), is expected to continue to increase, despite recent changes to the tax regime, as the Scottish Government targets having 500 employee-owned businesses operating in the country to 500 by 2030.
Nicholas Howie, partner in the corporate law team at Lindsays, which has advised on 25 employee ownership deals in recent years, said: 'An exit strategy can be one of the biggest issues facing owners of SMEs (small and medium-sized enterprises) in Scotland. Employee ownership is an increasingly effective - and empowering - way of managing that. It's transformational for many businesses.
'It allows sellers - often founders or families who have run businesses for generations - to continue to play a role in their future, while putting the legal and financial frameworks in place which create a long-term legacy for their employees.
'Owners who sell their shares to an EOT gain an exemption on capital gains tax. But, on top of that, EOTs are really starting to demonstrate their economic worth.
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'The feedback that we've had is that businesses which make the change become more productive and profitable because the whole staff team has a stake in its success, with the ability to award employees annually with bonuses of up to £3,600 per year per employee.'
Among the newest to make the change in Scotland is Wetrooms International Group, the Rutherglen-based bathrooms supplies business, which cited ambitious growth plans among the reasons for transferring the majority of its equity to its 80 employees. Founders Brian and Bill Crombie have retained a 26% shareholding following the transition to an EOT.
Brian Crombie said: 'For us, this is about building a legacy for our team, recognising the loyalty of our staff. Becoming an EOT was the logical step for us to take. It makes sense for everyone.
'I'm 73 and Bill is 71. We've got ambitious plans for the business while naturally also considering what work looks like for us longer term. We've had approaches, but didn't like the idea of a trade sale, putting the business in the hands of someone who might not understand our unique ethos. Our team deserves better.'
Bill Crombie added: 'The business is in a real period of growth with huge potential to expand significantly over the next five years.'
Employee ownership is continuing to grow in popularity despite recent changes to the capital gains tax regime for EOTs in the Autumn Budget. The changes will aim, among other things, to 'restrict former owners or persons connected with former owners from retaining control of companies post-sale to an employee ownership trust by virtue of control (direct or indirect) of the employee ownership trust'. They also aim to 'require that the trustees must take reasonable steps to ensure that the consideration paid to acquire the company shares does not exceed market value' and will extend the capital gains tax clawback period from one complete tax year following the tax year of the sale to four complete tax years.
Specialist advisor Carole Leslie, director of Ownership Associates, who has helped more than 150 firms make the transition in the last year, said: 'The interest in the EOT structure is continuing to accelerate at pace across all business sectors. As awareness grows, more companies are seeking out a succession option that allows the owners to realise their value in the company tax effectively and allows them to control their own exit from the company.
'It's great news for employees. They can be as reassured as possible that their employment will continue for as long as the company continues to be successful, whereas any other succession option would likely lead to disruption and possible relocation or downsizing.'
The benefits that can be achieved from staff having a greater stake and say in how they work are being highlighted today, as Employee Ownership Day takes place.
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