Many companies find that a hybrid or combined model with direct and indirect ownership suits them best.
In this case, the Employee Ownership Trust (EOT) will hold shares on behalf of employees in order to ensure stability and long-term ownership and to provide an internal market through which people can sell & buy shares. A tax efficient share scheme such as a Share Incentive Plan or Enterprise Management Incentive can then be used to distribute the other shares to employees.
Under these circumstances, those individuals who participate in direct share ownership may see the value of their shares increase and there is scope for dividends to be paid in a tax efficient way.
All employees are able to share in success regardless of their personal ability to purchase shares and can still receive financial reward for corporate or personal success through bonus payments.
If hybrid share ownership is of interest, consider the following points:
- Does the business have the resources to deal with the extra complexity and administration that comes with the hybrid form of employee ownership?
- What proportion of share ownership will be held indirectly by the EOT, compared to the proportion to be held directly by employees?
- You will need to ensure that the EOT (as buyer of first refusal) has funds to buy shares from employees should they choose to sell in future.