Turn off the A61 in Hunslet, southeast Leeds, and before you hit the Tesla car showroom you will come across the attractive red-brick, two-storey head office and factory of Union Industries. Proudly flying Union Jack flags and boasting a golden lion as its emblem, the 83 people beavering away inside are unlikely pioneers of the latest employee-ownership revolution.
Union Industries, which makes high-speed industrial roller doors for the likes of Tesco, Jaguar Land Rover and BAE Systems, was one of the first companies in the country to adopt an employee ownership trust (EOT) as its legal owner.
While businesses such as the John Lewis Partnership have long been owned by employees using other legal structures, the coalition government in 2013 decided it wanted to incentivise more company owners to consider the move. To do so it offered attractive capital gains and inheritance tax breaks and created the EOT structure. The legislation gained royal assent in July 2014.
Union’s savvy owners Isobel and Paul Schofield, who had set up the business in 1973, were already laying the groundwork to pass on the business to their team. They hired a new managing director, Andrew Lane, who had joined by February 2014 from Sutcliffe Play, a playground equipment maker.
Eleven years on, Union is one of the best examples of how to operate an employee-owned business in the country. Not only are its team benefiting from more autonomy, their collective efforts have so far resulted in bumper bonuses and dividend payments each year.
Lane, 60, said that when the Schofields sold a majority stake in the business to the EOT, the company was generating less than £5 million in revenues and making £130,000 in profit. “Last year we made about £2.5 million profit from a turnover of £12 million,” he says, adding that in its trading year that ends on Monday, March 31, the performance will be similar.
Each year they split the profit distribution in two ways: 25 per cent through a bonus and 10 per cent as a dividend to the employee ownership trust and individual employees who have bought shares.
“Last year everybody took home a £6,500 bonus, plus a dividend on the shares that they bought in the business. Our forklift truck driver [Neil Flockton] took clear £10,000. That matters,” says Lane.
Union Industries is one of 2,250 businesses across the UK that are employee owned, according to the Employee Ownership Association. The number has increased significantly in recent years, up from 1,600 in 2023 and from only 152 in 2014. Attraction Tickets, of London, which sells tickets and hotel rooms for theme park resorts such as Disney in Florida and made pre-tax profits of £6 million last year, became one of the latest this month.
Not all employee-owned companies thrive. John Lewis, the retailer, will not pay a bonus for a third year in a row this year as it focuses on turning around its fortunes. Last year the £421 million-turnover construction firm Readie fell into administration only three years after its founder Stuart Read sold his shares to an EOT. His advisers on the deal, FRP Corporate Finance, said at the time that the EOT would “provide long-term stability for the company’s 150-plus employees.” Last February the majority of the firm’s then 160-strong team were made redundant.
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Lane at Union Industries has his own theories as to why some thrive and others do not. He isn’t commenting on any one specific case but key, he said, is the terms of the deal that sees the existing owners sell out.
“The former owner has to leave enough substance behind for it to be a viable business,” he says. He was fortunate at Union that the Schofields were keen to pass on the business in good shape. The deal was a “benevolent” one, he says. “They wanted to exit with a million pounds in the bank so the business would survive. Where employee ownership flourishes it is that kind of a deal.
“They get their money tax-free, let’s not forget that there’s an advantage for them in that. But we get to be masters of our own destiny and that without the employee owners having to put their hands in their pockets.”
He continues: “One thing I see a lot is [considering selling to an EOT] can be used purely to reduce the tax of an existing founder. When the Employee Ownership Association send people to me you can tell within five minutes whether they actually want an employee-owned business or if it is a tax break for them. If it’s a tax break I stop talking to them and send them away.”
Lane is full of praise for Union Industries’ former owners. “They remain like royalty here,” he says. The benevolent deal also meant the EOT set up to own the business was not saddled with an onerous schedule of debt payments to the previous owners, who typically take deferred payouts over five to ten years.
In Union Industries’ case, the deal was to pay monies owed over 14 years, with no interest incurred. “We overpaid every year, and instead of 14 years we made it nine so we are fully repaid now,” says Lane. And because the debt payments did not wipe out its profits they had cash each year to distribute to the employee owners. “The first year it was £1,000; the next £2,000, the next £2,500, all tax-free. Since then we have made £3,600 or more every year.”
He adds: “You see CEOs telling you how much they care about their people and then they screw them down on salaries. We go the other way. We don’t shout about it, we live it.”
Owners that demand tougher terms are placing the businesses they have founded at risk, says Lane. “If you have ten years or even five years where you can’t share in the success you generate, that is a pretty dark place. How are you going to get people to invest in the business when it looks like they are slaving away to pay someone else off. It is difficult for the employee ownership culture to thrive in that environment.”
There are other challenges. It takes time to build the right culture. Union Industries has an employee council and regular events to bring the employees together. Lane says: “The problem with employee-owned transfers is that there is a big hype to the transition day when the papers are signed and there is some champagne and cakes. Then the next day, the employees go back to the same desk, do the same job for the same money. The magic can just disappear.”
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The business also needs employees to recognise that ownership brings both rights and responsibilities. “We have dismissals, disciplinary issues: the same things that everybody deals with. What we are saying is we will treat our partners fairly, favourably even. But they have to do their bit to get into the club. This isn’t utopia. It is still a business and one that operates on a platform of fairness.”
The secret sauce for employee ownership, according to Lane, is “doing it for the right reasons”. “Step away from management-level greed,” he advises. “My bonus this year will be the same as our forklift truck driver because it is right. I get paid for the job I do. He gets paid for the job he does. When we both do it well, we should share in the success that that generates.”
Employee ownership trusts — the perks
The government encourages entrepreneurs to give their business to their team through an employee ownership trust. This involves shareholders — a founder, for instance — selling their shares to the trust, with an independent valuation expert setting the price.
The purchase price creates a debt owed by the trust to the shareholders, which typically is paid off incrementally by the business as profits are generated. Money also can be borrowed to finance an upfront payment to a selling entrepreneur.
The benefit for the owner is that sale of their shares is exempt from capital gains tax. There is also relief from inheritance tax on some qualifying transfers into and from EOTs.
Employees, meanwhile, can receive tax-free bonuses of up to £3,600 per tax year from the trust.
