Growth: call for solicitors to promote shared ownership when advising on succession

Solicitors are in a prime position to take advantage of a massive growth in the £25 billion employee-owned business sector, leading lawyers in the field said this week.


However, solicitors and other advisers are currently failing to suggest employee ownership when advising businesses on succession, they claimed.


A report published last month revealed that the total turnover for the co-owned sector - where employees either own a company outright or have a significant stake in it - now comfortably exceeds £25 billion.


There are no longer any 'no-go areas' for employee ownership, the report says, with the sector ranging from home-care services to polymer manufacturing, oyster farming to engineering consultancy. The Royal Mail is currently understood to be considering creating a large employee stakeholding through an employee trust - ' a sign of employee ownership's growing credibility', according to the report.


Graeme Nuttall, a tax partner at City firm Field Fisher Waterhouse and co-author of the report, said: 'While clearly we hope that businesses like the Royal Mail will follow this [trend], most of the demand for information on employee ownership comes from small family-owned businesses where there is no obvious member of the family to take over.


'We expect the sector to grow still further - we hope that advisers will think of employee ownership as an alternative method of dealing with change of ownership. At the moment, advisers will just reel off a trade sale, or a venture capital-backed management buyout as the [only] options to consider.'


He added: 'Law firms are better suited to advise on employee share ownership than other sources of business advice, because there is a high legal element to what is required. For example, it can involve the use of a trust, which is something that all lawyers are familiar with, and that other advisers struggle to understand.


'There are tax issues that need to be addressed, as well as a full range of legal issues, for example, employment law implications, and company law aspects. There are also data protection issues, because you are compiling more data on employees.'


Robert Postlethwaite, principal at Postlethwaite & Co in London and also a co-author of the report, said: '[These structures] represent a particularly good opportunity for law firms. They are often the preserve of accountancy firms, but to get the work done properly, it needs a lawyer's input. It's about getting the documentation clear, and getting the communication to employees in a way that is understandable and clear. Lawyers are better placed to do that.'


Mr Nuttall added: 'For a long time, research has said that if employees have a financial benefit and shareholding interest, that should increase productivity. The report shows that you also need a collective voice for the employees, such as an employee trust. That provides an extra boost to productivity.


'The charge laid down in the report is that the Treasury should consider whether there should be tax breaks for employee trust share ownership. The signs are that the Treasury is keen to discuss this point.'