A guide to employee ownership for your small business
As the workforce evolves, many businesses are abandoning traditional ownership structures in favor of employee-centric models. Here, we explore the benefits of employee ownership and the options available for small businesses.
Ownership minimizes turnover
Many employees come to work to clock in, check off their boxes, and clock out. Sure, they want their company to stay above water, but they have no reason to go above and beyond. Employee-owned companies are different. Employees at these companies have a stake in their workplace — literally — and both personal and financial incentives to excel.
Adopting an employee ownership model could be the secret ingredient you need to supercharge your business. According to the Employee Ownership Foundation’s 21st annual Economic Survey, 93.3% of respondents indicated that employee ownership has benefited the company.
The advantages of employee ownership are plentiful and varied:
- 76% of respondents said employee ownership increased productivity
- 76.2% said revenue increased
- 70.5% indicated that profitability had increased
If you’ve considered making your small business employee-owned, now is a great time — a 2019 Rutgers study revealed that 72% of United States employees would like to work for an employee-owned company.
Small business ownership options
Don’t think you can’t switch? You can! Employee ownership manifests in several different ways. The following are four of the most popular ownership models.
1) Employee Stock Ownership Plan (ESOP)
An employee stock ownership plan gifts all employees a predetermined number of company shares. The monetary value of employee shares, however, is not given directly to employees.
Instead, it is held in a mutual company retirement fund. Once an employee retires, the monetary value of his or her shares is disbursed. In most cases, the company itself withholds some stock to maintain majority control. Stock-centric ESOPs are best suited for highly-profitable companies with $2 million or more in revenue.
2) Worker-owned cooperative
Unlike ESOPs, worker-owned cooperatives are entirely employee-owned. Employees are tasked with managerial duties and even elect the board of directors. Democracy is at the heart of all cooperatives— each employee has a vote, and, by consequence, has a level of authority.
Companies of any size can be worker-owned cooperatives. Cooperatives can be budget-friendly, too — profits shared as patronage are tax deductible.
Employee-owned companies are different. Employees at these companies have a stake in their workplace — literally — and both personal and financial incentives to excel.
3) Employee Ownership Trust (EOT)
Employee Ownership Trusts combine the value offerings of an ESOP with the democratic nature of a cooperative. Instead of shares, employees in EOTS receive a portion of the company’s annual profits. This model is an increasingly popular option — profits, unlike stocks, are less prone to value fluctuations. Like cooperatives, EOTs are ideal for companies of any size.
4) Limited Liability Corporations (LLCs)
If you own a very small business (20 employees or less), limited liability corporations provide an excellent avenue for employee ownership. Instead of shares, employees can sign personal guarantees that denote liability within the company. All employees with personal guarantees take on company responsibilities and can allocate leadership accordingly.