Ross McNaughton, corporate partner, Paul Hastings

Who will employ the employees?

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  • In my experience, impeding future exit is often very much an intended consequence of an employee ownership transition. Many owner managers or family firm owners choose to sell to employees because it is a way to anchor a business in its local community. The track record of employee owned businesses is widely evidenced: more profitable, productive, with happier staff and customers and more innovative than conventionally structured companies. Employee ownership is good for individuals, communities and the wider economy.

    It is of course wise advice to consider the consequences of any decisions made when structuring or restructuring a business. However, as the vibrant and growing employee ownership sector proves, not everyone is in it for the fast buck; many would prefer to see sustainable businesses providing quality careers and skills for future generations that keep the wealth in the community rather than to

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  • The history of employee owned companies demonstrates that employee ownership is not a bar to take-over. Indeed such was the state of turnover of ownership of employee owned compnaies in the 1990s it was argued that employee ownership was akin to transitional ownership. For examples look at the sale of Rowntree to Nestle or any of the sell offs of the newly privatised bus companies in the 1990s. Entrenching ownership (as said by Carole Leslie) can be an intended consequence of the adoption of employee ownership especially where a significant holding is vested in an employee trust. However even in this situation a take over is possible and the complications are , in my experience, never insurmountable when there is a willing buyer and willing seller.

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