Employee Ownership Explained – The Role of the Legal Adviser in the EOT Transaction

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The latest webinar in the Employee Ownership Explained series took place on Wednesday 21 September. This month, the focus was on the role of the legal adviser in employee ownership transactions. Having worked on a number of these transactions himself, Bruce Farquhar of Anderson Strathern gave an insightful overview of the process from a legal adviser’s perspective.

The presentation began with a useful summary of the tax advantages that employee ownership trusts offer and an explanation of the structure of an employee ownership governance model. This was particularly useful as the majority of attendees did not have direct experience of implementing an employee ownership trust.

Bruce then went on to discuss the key aspects of an employee ownership transaction. He highlighted that there are some essential decisions that need to be made, including:

  • the share price;
  • the number of shares being sold;
  • how the transaction will be funded;
  • the timing of the payment of the purchase price; and
  • the choice of trustee.

Once these matters have been decided the key legal documents can be drafted. Typically, this will include a share purchase agreement, a trust deed and new articles of association for the company. Final drafts of the documents should be submitted to HMRC for tax clearance prior to completion. The whole process usually takes around 3 months.

Bruce emphasised that it is important that the founders of the business are involved from the outset and that good lines of communication are established between advisers. He also highlighted that in employee ownership transactions all interests are aligned. From a professional adviser perspective, this offers a different rhythm and balance to standard M&A transactions.

The presentation was followed by an interactive Q&A session, a summary of which is outlined below.

A poll carried out during the webinar highlighted that 52% of attendees felt that a lack of awareness was the main thing stopping business owners from considering an employee ownership transaction as an exit route. Following the session, however, the majority of advisors who attended said that they would be likely or very likely to discuss a sale to an employee ownership trust with a client considering succession.

A recording of the webinar can be found here:

A copy of Bruce Farquhar’s presentation is available here: The Role of the Legal Adviser in the EOT Transaction

Questions & Answers

Very few business owners present. Is this a concern?
This stream of webinars is aimed at professional advisers with the objective of supporting them in presenting the EOT option to their clients.  The lack of knowledge of employee ownership was one of the key barriers identified in the Nuttall Review. In response to this, CDS launched an initiative to support advisers in finding out more about this.  This initiative has been running for 6 years now with encouraging results.

Are there common messages to ensure that employees’ ownership is more than just a financial ownership?  For example, do they get involved in appointing Trustees to the Employee Ownership Trust?
Yes, it would be usual for employees to elect Trustees, and it would be usual to have employees as trustees. It is also the case that some companies opt to elect employees to serve as directors on the trading company board. The employee ownership structure is very flexible and what matters is that the model fits the business. It is imperative that any directors should receive full training prior to taking up these positions.

How many Employee Ownership Transactions fail to complete once they have formally started?  I would imagine with the collaborative nature of the transaction it would be a lot fewer than traditional sales routes?
Correct. Very few of these transactions do not complete. There can be a long incubation period while the owner considers their options, and the CDS Feasibility Report helps with that decision-making process. Sometimes business gets in the way and can delay the transaction. It is very rare that these deals do not reach a successful conclusion.

Is there any support for companies in terms of financial help with the cost of advisers? It sounds as if there is a lot of advice required and could be costly.
CDS can offer an Ownership Succession Review which will explore all the exit options and should employee ownership be judged viable, CDS can provide a free Feasibility Report to companies looking to find out more.  This feasibility report also gives some indication of what the costs of the transaction would be.

How do you see the taking of security over deferred consideration working in the context of maintaining compliance with the controlling interest requirement?
It is clear that the Trust can’t give a charge over the shares that it owns in the trading company for the deferred consideration element. In the transactions which we have worked on, no securities have been taken over the company’s assets by the founder, perhaps because of the founder’s confidence and their continuing role in the business.

It was mentioned that due diligence is usually “light touch”.  As a Trustee would you not want a more robust due diligence process undertaken in the event you might be taking on an undiagnosed issue?
The Trustees are effectively acquiring a controlling interest and paying a considerable sum of money and they have to be satisfied the valuation is correct and there are no potential material issues that will impact that. In reality, the stakeholders in the transaction are inextricably linked with the business and know what the issues are.

25% is the threshold at which an employee can be called employee-owned.  Do you see examples where the employee stake is higher than this and is it usual for more shares to move to the EOT?
It is now usual for more than 50% of shares to be placed in the Trust to enable the company and the sellers to benefit from the tax incentives. It can get complicated when there is a mix of direct shareholding by employees and indirect shareholding by Trust.

Have we seen any professional firms, in particular accountancy practices move to employee ownership?
There are a few examples of professional firms who have adopted employee-owned models.  We are not aware of any in Scotland and that may well be due to the regulatory requirements of the relevant professional governing bodies.

Do the owners have to work until the full amount has been paid to them?
No, the owners can choose how long and in what capacity they remain with the business and this position is usually protected while there is money outstanding to them.

The CDS team is happy to provide information and signposting to companies and their advisers who may wish to find out more.

NEW CAMPAIGN TO SHOWCASE THE ROLE INCLUSIVE BUSINESS MODELS CAN PLAY IN THE RECOVERY OF THE ECONOMY LAUNCHED

CDS Inclusive Model Businesses

We’ve launched a new campaign to showcase the role inclusive business models can play in supporting the Scottish Government with its aim to create a fairer, stronger and more democratic economy, particularly following the COVID-19 pandemic.

To launch the campaign we commissioned a new survey which revealed that half of Scots (48%) agree the pandemic has provided an opportunity to make Scotland’s economy stronger and fairer, with under 35 year olds more even more likely to agree (59%).  64% also said that the pandemic has already made their business more socially responsible.

When asked what should be the top priority for businesses going forward, three out of four people said protecting jobs (74%), followed by staff wellbeing (67%) and creating innovative solutions to problems (53%).

We caught up with Head of Co-operative Development Scotland, Clare Alexander, to find out more.

While discussions on the social aspects of the economy have become more vocal in recent years, COVID-19 has undoubtedly fuelled its relevance and urgency. The world has been shaken, many of our norms have been questioned and as our survey shows, there is a desire not to return to life as before. Business leaders have prioritised wellbeing, communities have responded to help and support each other and new and innovative ways of being economically viable have come to the fore. There has also been a focus on a collective, rather than individual, call to action. Employee ownership, community ownership and consortium co-operatives are effective examples of plural ownership that can help us drive that necessary change across our business communities and support is available to make it happen.”

This approach to business is at the heart of the Scottish Government’s Programme for Government, which recognises the critical benefits of Community Wealth Building – a people-centred approach to local economic development which redirects wealth back into the local economy and places control and benefits into the hands of local people. The models promoted by CDS are effective examples of plural ownership, one of the five pillars of Community Wealth Building deemed integral to effect the necessary change for local communities and national wellbeing.

“An employee-owned business is one in which the employees hold the majority of the shares, either directly or through an employee ownership trust.  Selling to employees allows owners to manage their exit and achieve fair value while safeguarding the long-term future of the company. Employee ownership gives employees a meaningful stake in their organisation together with a genuine say in how it is run.

“Evidence shows employee-owned businesses consistently outperform in terms of improved business resilience during times of economic crisis. They tend to be more productive with higher levels of staff engagement and wellbeing, particularly relevant during a time in which people are spending more time working from home.”

The employee owners at Highland Home Carers, the Highland’s leading home care provider and Scotland’s largest employee-owned business, used its employee-owned status to support the staff financially through the crisis via pay increases, a profit share pay-out, an enhanced sick pay programme and a share buy-back scheme.  It also introduced an Employee Assistance Programme in which staff can access a range of support services including the use of physical and mental health professionals.

Our survey also revealed two out of three (66%) Scots are pessimistic about the future of the economy following the COVID-19 pandemic. In addition over one in three said job security was a concern, followed by over one in four saying closures of local amenities such as shops and pubs was a worry.

“Setting up a community co-operative can be an effective way for people to safeguard public services, for instance coming together to take over a local shop or pub and prevent it from closing, something which could be relevant in the current climate. Community businesses can have a significant positive impact on areas whether they provide a local service, deliver economic growth, or contribute towards the health and wellbeing of the local community – often all three. They are important to the economy because they can retain jobs, bring economic opportunity and retain vital services and amenities.

“The economic and social potential of community business is significant, and could be more widely adopted in Scotland. Combined with the greater community spirit that has been cultivated during COVID-19, now is the perfect time to champion community business models and the wider economic, social and environmental benefits they can deliver.”

Community co-operative The Crunchy Carrot, a community-run shop in Dunbar, East Lothian, went from supplying 60 vegetable boxes per week before the pandemic to 350 during the early stages of lockdown, responding to the community in its time of need. Strong and well-established local supply chains with mills and farms, something local chain shops didn’t have, meant all orders were fulfilled and deliveries to vulnerable customers were guaranteed.  Whilst demand has eased as people return to normal shopping patterns, the Crunchy Carrot has still significantly grown its customer base on the back of the reliable and reassuring service it was able to provide during difficult times.

“With 33% of Scots stating that working collaboratively with other businesses should be a priority, we’re advising business owners to consider the advantages of formally joining together via the consortium co-operative model.  These are established when businesses come together for a shared purpose; to buy or sell in scale, market more effectively, share facilities or jointly bid for contracts. 

“We know collaboration has been a vital part of the response to the pandemic, so formalising a consortium co-operative could be an effective, low risk way for businesses to improve market presence and achieve new goals whilst retaining their independence.”

The Glasgow Canal Co-operative, which aims to ‘unlock the potential of the canal to create a vibrant neighbourhood for people to live, work and visit’, is a consortium co-operative made up of 25 member organisations. Whilst it has been a difficult time for many of its members, they have pooled resources, shared risks and have worked together during the pandemic to develop projects for the wider consortium which also support the members’ own activities. Having a platform for members to share experiences and to help each other has been very important and has enabled them to respond to the effects of the pandemic more strategically.

“Whilst businesses with plural ownership have experienced many of the same challenges around job retention, cash flow and uncertainty as others during the pandemic, they are often more resilient, putting them in a strong position to either weather the economic storm or to recover well afterwards.  During the initial response to the pandemic many of these businesses were able to unite behind a common goal, helping their ability to adapt and innovate during the crisis.

We are enormously passionate about these business models and their contribution to both the communities and sectors in which they operate as well as the wider Scottish economy.  The economy needs to have the best possible chance of recovery, with businesses that can be resilient, adapt and offer a fairer more inclusive economy.  We know there is a significant role for inclusive business models to play in helping to build back better and would urge any business owners reviewing their options to consider adoption of these models.”

Jamie Hepburn MSP, Minister for Business, Fair Work and Skills, is supporting our campaign. He added: “COVID-19 has had a massive impact on the global economy and Scotland, like all countries, has been deeply affected. This forces us not just to respond in the immediate term, but also to make choices about the sort of economy we want to have and to focus our efforts on building back fairer and stronger.

We are committed to ensuring everyone can access work that is fair and offers flexibility and opportunity for all, and recognise the benefits of community wealth building – economic development that ensures local people and businesses have a genuine stake in producing, owning and enjoying the wealth they create.

“As this survey shows, the pandemic has increased the importance businesses place on social responsibility. To help protect jobs and improve staff wellbeing, it is important that we build on that and keep these initiatives going.”

SHORE BECOMES EMPLOYEE-OWNED

Scotland’s largest product design company Shore has become employee-owned, with over 30 members of staff given a stake in the business.

The company, which operates from Leith in Edinburgh, designs, engineers and develops class-leading drug delivery products, diagnostic devices and medical training products. It has a huge global customer base with over 80% of its customers in the USA, EU, Switzerland and Japan.  Its clients include some of the world’s biggest medical and pharmaceutical companies such as Johnson & Johnson, Amgen, Smith & Nephew, Eli Lilly and Ypsomed.

Shore was founded in 2003 by current owner and managing director Nick Foley.  Nick wanted to plan for his eventual exit by considering succession options early, therefore allowing for a smooth transition. He wanted a solution that would ensure the business remained independent and retained the company’s strong values and culture.

Whilst all options were considered, employee ownership was suggested by Scottish Enterprise, who put Nick in touch directly with Co-operative Development Scotland (CDS), and it quickly became the favoured route.

We spoke to Nick to find out more.

“In due course I will want to exit the business, however having founded and developed it into a market leading company over the past 17 years, I didn’t want to sell to a third party and see the team’s hard work absorbed into another organisation with different values or a long-term strategy that might not match ours.

We have developed a strong team ethic and a culture based on collaboration, support and respect. We’re not a group of individuals sharing an office – we are a team. Our people are hand-picked for the skills, creativity, experience and spirit they bring to our company, so it was important to me to give the company, the jobs and the brand the best chance of continued independent existence following my exit. The business should work for the employees, rather than the other way around, so employee ownership was the perfect fit for us.”

 The move to employee ownership comes despite economic turmoil as a result of the COVID-19 pandemic, with Nick viewing the transition as an effective way to bolster staff morale and maintain engagement and productivity as the team work from home.

“The staff are very excited about the transition, so it’s been a very positive experience and they’ve been really engaged in the process. Moving into employee ownership gives the opportunity for continued job security for all staff and enables them to have collective control of their future.

Thankfully we’ve not been negatively affected by the impact of the virus; we’re very busy with both new and ongoing projects given our work in the medical and pharmaceutical industries and we’re very fortunate that the team is able to work from home.

“The whole process has been really smooth; essentially everyone is on the same side of the negotiating table which has made it much more straightforward than a typical trade sale.

“I firmly believe that the transfer to employee ownership is key for building a successful and long term sustainable business. It helps reinforce our existing internal culture and values whilst providing a fantastic service for our clients.”

An Employee Ownership Trust has been formed and will hold a majority of the shares on behalf of the employees.  Nick will remain a significant shareholder in the business. The transition was supported by Co-operative Development Scotland (CDS), with the process managed by Ownership Associates, legal services by Anderson Strathern, and accountancy services by Scholes.

If you’d to know more about employee ownership and how it could help your business, please get in touch with us here using the ‘expert support’ option.

The Shore team pictured at a company event in pre-Covid times.

The Shore team pictured at a company event in pre-Covid times.

Employee Ownership Explained – The role of the accountant in the EOT transaction

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The increasing interest in employee ownership was reinforced on Wednesday 16 September when our webinar attracted over 60 attendees. Dougie Rae, Partner, EQ Accountants has worked on a number of employee ownership transactions and shared his experience in what was agreed to be a tremendously valuable presentation, followed by a lively Q &A session.

The audience was largely advisers, and as the title would suggest, this webinar attracted mostly accountants.  More than half described their knowledge of Employee Ownership Trusts (EOTs) as basic or non-existent. Half had no direct experience of working on an EOT transaction. Encouragingly, more than 60% of advisers who attended said they were likely or very likely to discuss EOTs with their customers following their attendance at the seminar.

Dougie Rae talked through the requirements of the legislation.

To qualify for the Capital Gains Tax relief:

  • The company has to be a trading company, or the principal company of a trading group (Trading Requirement)
  • The EOT must hold the controlling interest in the company (Controlling Interest Requirement)
  • Any benefit must be paid on the same terms to all eligible employees (All Employee Benefit Requirement)
  • The number of continuing shareholders who are directors or employees (and people connected with them) must not exceed 40% of the total number of employees of the company or group (Limited Participation Requirement).

Dougie advised that clearance is sought from HMRC to ensure that the 0% Capital Gains Tax rate applies to the transaction.

The process for valuation is exactly the same as it would be for an external buyer; the difference is that, as a non-adversarial sale, there is no tortuous due diligence process seeking reasons to reduce the price.

The presentation was followed by a comprehensive Q&A session, demonstrating a genuine interest in how the EOT, and employee-owned companies, work in practice.  The questions and answers are detailed below.

Attendees were asked what barriers they believed to be in the way of wider adoption of EOTs. 49% thought lack of awareness is the major obstacle, with 20% believing it’s a lack of leadership capability within the business with15% ascribing the key hurdle is availability of funding.

Feedback from the session has been overwhelmingly positive with 90% of respondents to the post-session evaluation assessing the webinar as Excellent or Very Good.

A recording of the webinar can be found here: 

A copy of Dougie Rae’s presentation is available here: Dougie Rae, EQ Accountants

Questions & Answers

Q: Are the employees required to put funds into the Employee Ownership Trust (EOT)?
A: Not usually.  The EOT can sit alongside a share scheme where employees would have the option to invest, but it’s not usual for employees to fund the transaction to any extent.

Q: Are you seeing the EOT being implemented across any specific sector or industry?
A: No. There is a very diverse range of businesses taking the EOT route, covering almost all sectors, company sizes and locations.

Q: From your recent experience do you find business owners have undertaken sufficient personal financial planning when considering their exit and in light of a low yield environment do they know how best to manage their net proceeds as the transaction completes?
A: Difficult to give an accurate answer. Probably fair to say that most individuals do not invest sufficient time in financial planning and maximising monies raised from a disposal.

Q: On valuation, have you seen the HMRC challenge or request any further detail on methodology/multiples used?
A: As far as panelists are aware, to date there have been no challenges on valuations submitted to HMRC.

Q: On an exit from an EOT, are the net proceeds distributed to employees treated as employment income?
A: Expert advice must be sought.  However, in the three incidences of an exit from an EOT that we are aware of, two resulted in distributions to employees. In both cases, once the Trust had paid any Capital Gains Tax due, this income to employees was treated as coming from employment and therefore subject to Income Tax.  National Insurance must also be paid by both employees and the company at prevailing rates.

Q: Who do you normally see driving the transaction?  Presumably the vendors are pushing the transaction as a means of obtaining a sale?
A: Yes, it would normally be the majority shareholders who opt to do this, and then shape the transaction going forward. The driver isn’t always the sale; often it’s because of loyalty to staff, desire for company to remain in situ, or because seller has plans to remain in business and phase their exit, rather than be subject to targets/tie-ins from new business owner.

Q: Shares/bonus/dividends should be based on factors such as time served or salary. Can you provide some further examples and how this works in practice?
A: The legislation is quite specific in how the EOT bonus can be distributed and companies take different approaches to this.  The implementation of an EOT does not impact on the company’s general remuneration policy; companies can pay bonuses and award shares as they see fit.  Dividends can be paid to shareholders as normal.

Q: How do you see the Scottish Government supporting this and how? Through Scottish Investment Bank or others?
A: All parties within the Scottish Parliament are supportive of employee ownership.  CDS has been a key driver of employee ownership in Scotland, and Scotland is unusual in having a funded, dedicated resource.

Q: Have you seen any transactions where bank funding has been available to support the transaction?  Would this be raised by the company and then gifted to the trust or can the Trust raise debt itself?
A: There is an increasing appetite for banks and specialist lenders to part fund EOT transactions.  It would be usual for the company to take on the loan and gift the cash to the Trust to repay the vendor.  So far, in the experience of the panellists, there has not been an instance where the Trust has assumed the loan.

Q: What if seller’s expectations are too high?
A: It is usual for seller’s ideas around valuation to be quite realistic. However, as with any company sale, a mismatch of expectations might lead to an open and frank conversation about what is affordable.

Q: Is there Corporation Tax deductions for the tax-free bonus?
A: Yes, this is treated as payroll and therefore the sum is deductible for Corporation Tax purposes.

Q: What sort of timescales from start to finish in a typical transaction?
A: 2-3 months would be normal, although some companies take longer if there are multiple shareholders, or business demands that must be addressed first.

Q: Could a hybrid model be good for a family business e.g. 51% EOT and 49% in family ownership
A: The EOT structure is quite flexible and it would be quite possible to combine an employee trust with a family trust or direct shareholdings.

Q: Can an EOT still implement a tax advantaged share scheme such as growth shares or an EMI scheme?
A: Yes, quite acceptable.

Q: If dividends are declared by the trading company, then presumably the EOT then acquires a share of the total dividend pot as well as payments to any original shareholders who still hold a small percentage of share capital?
A: It is usual for the EOT to waive its right to any dividend (as it has no requirement for cash) and this money returns to the company to fund the bonus.

Q: What level of due diligence is typically performed on behalf of the EOT to protect their interest?
A: As the former owner is usually remaining with the business in some form until all money is repaid then any due diligence is normally quite ‘light touch”.

Q: Is there full transparency to all staff of salaries in an EOT and does this cause any difficulties?
A: Although there does tend to be increased transparency around company finances this does not usually extend to remuneration.  Salaries are usually still confidential within most employee-owned businesses.

Q: What is the current level of CDS support to interested parties?
A: CDS offers a fully funded ownership succession review and employee ownership feasibility study to companies interested in exploring whether employee ownership is an appropriate model for them. 

The CDS team is also happy to provide information and signposting to companies and their advisers who may wish to find out more.

Community Owned Businesses- The Journey

There is growing recognition of the value of community businesses, preserving community assets and generating economic value for their communities. COVID-19 has clearly demonstrated the importance of supporting communities to be innovative and take the step towards generating wealth locally, avoiding the return to normal economics.

Community imageIn partnership with the Plunkett Foundation, and Community Shares Scotland, Co-operative Development Scotland ran their second Community Business: Making it Easy event this month providing key insight to the realities of establishing a community business and information about the support available

Brian Connolly from the Co-operative Development Scotland was there on the day and shares his key learnings from the event.

Eleanor Porter chair of  Dunshalt Community Shop was the first speaker at the event and she shared the shops story with the audience. She described their journey as a puzzle, looking to recognise the specific pieces which came together. Initially this consisted of a community recognition of loss through the closure of the local shop, risking both a source of groceries, but more importantly a social hub. Having taken steps to prevent a change of property function, this led to the start of external conversations to take the asset into community hands. Through the creation of a business plan and extensive community engagement, a Community Benefit Society was formed. Calling on funding from organisations like Leader, National Lottery and the Scottish Land Fund, a Community Share Issue created a platform to ensure residents were invested in the use of this space and raised over £31k in two months. Despite opening just before COVID-19, the shop has already become an invaluable asset, quickly providing a delivery service for local residents during lock down.

Dave Hollings, chair of the Dog Inn spoke about the experience of running a community owned pub. He highlighted the role the asset plays in providing a service to the community. Alongside the pub, the facility offers community space both internally and through its gardens. It has become a place of music and celebrations, bringing together residents and helping cement its importance in forming social bonds. Adopting a similar approach, the Dog Inn relied on a Community Share Issue allowing it to refurbish the premises on initial purchase and after only two years, create a return on investment. Importantly, the pub is a key employer locally, with 16 of their 25 staff being young people in the area.

Getting Community Buy-in
Following the case studies, there was a chance to hear from the support organisations in terms of how to undertake this journey and what help is available along the way. The first session explored the role of Community Engagement, recognising the need to invest both time and money in securing buy-in for the community business throughout. The act of pursuing community engagement serves several purposes including assessing local need, allowing residents to have their say, reducing opposition and bringing in volunteers / investors. To effectively undertake engagement, there is a need to firstly identify what we are defining as a community; are we referring to a geography or an interest group? There is often a need to specifically target a demographic group and use different language to reach them. Through the journey itself, there are four key elements:

  • Refining your message: What do you want to say and how do you ensure it is both clear and consistent.
  • Consulting: Using a set of pre-agreed questions, there is an opportunity to weave a story about why you are on this journey and gather contacts from interested parties
  • Engaging resource: The need to establish working groups who can take forward actions and utilise volunteer time as it becomes available.
  • Using the right methods: Whether questionnaires, film making, public meetings or informal discussions, selection of the right communication can be vital in securing the support needed.

Choosing the Right Model
The next session explored the role of Governance with the need to ensure the identification of the right model. The selection of the correct organisational structure for your community business impacts future decisions and development.  There are an extensive range of forms from a co-operative society, a private company (by shares or guarantee), or a community interest company. One of the most common forms utilised is the community benefit society which allows the issue of community shares and ensures a democratic approach to change (with one member, one vote). Equally important in selecting a legal form is exploring the governance with a need for clear constitution and a structure which puts members at the heart.

Raising the Finance
Following this was a discussion on the role of Community Shares as a way to raise money for a community enterprise. This is a method of crowd funding that achieves community ownership This is typically part of a larger funding package bringing in partners such as the Scottish Land Trust etc. This approach has been used in the past to finance projects from shops and pubs to harbour developments and renewable energy. A share issue is a great way to grow membership and ensure community involvement as the project develops. This small video will act as a useful explanation for how you can explore this approach: https://youtu.be/q6w-311GBIM

At the heart of any successful community business is a clear development journey. This enables the project to go from idea to a thriving organisation. Every community organisation is different, yet there is always value in learning from the experiences of others. The Plunkett Foundation have produced an invaluable guide to the steps you can expect to take, including some of the challenges you can expect.

Co-operative Development Scotland, Community Shares Scotland and the Plunkett Foundation work in partnership to raise awareness of community business and the available support in Scotland. If you are ready to move forward, please get in touch and we would be delighted to help you.

Submit an enquiry

 

EMPLOYEE OWNERSHIP IS THE WAY FORWARD FOR CIVIL ENGINEERING CONSULTANCY MHB

Civil engineering firm MHB Consultants has become employee-owned, with 40 members of staff given a stake in the business.

Founded by managing director Hendrie Barbour in 2006, MHB Consultants is an engineering design consultancy specialising in bridge design, civil and geotechnical engineering, temporary works and land surveying. Together with fellow directors Fergus Aitchison and Alistair Gray, Hendrie has grown the firm organically to 40 staff, with headquarters in Glasgow and regional offices in Edinburgh and York. Clients include construction firms, transport agencies, local authorities, engineering consultants and private clients throughout the UK.

Hendrie wanted to plan for his eventual exit over a number of years by considering succession options early, therefore allowing for a smooth transition. The management team wanted a solution that would ensure the business remained independent and retained the company’s strong values and culture.

We caught up with Hendrie to find out more.

“All of us have been involved in building MHB, and we are proud of the successful business that it has become and the team of employees that we have. We don’t want any exit plans to impact what we’ve all built or change the way the business operates and our way of doing things.

“With a planned deal completion date of mid-2020, the arrival of the COVID-19 pandemic created some uncertainty over the timing, however the decision to go ahead was seen as a positive long-term statement and one that would engage staff moving forwards.

“Goodwill from employees is important right now as we must all pull together in the right direction. What better way to do this than with all of us as owners?

“We are all genuinely enthused by the idea that there is a way of transferring ownership without needing to sell MHB to another company and risk destroying what has been built up over the years. We believe that employee ownership will be the start of an exciting new chapter at MHB.”

An Employee Ownership Trust has been formed and holds 100% of the shares on behalf of the employees.  The transition to employee ownership was supported by Co-operative Development Scotland (CDS), with the process managed by Co-ownership Solutions LLP and legal services by Lindsays.

If you’d to know more about employee ownership and how it could help your business, please get in touch with us here using the ‘expert support’ option.

MHB Directors L-R Hendrie Barbour, Alistair Gray and Fergus Aitchison.

MHB Directors L-R Hendrie Barbour, Alistair Gray and Fergus Aitchison.

 

Key advice for setting up a community business

Earlier this year Co-operative Development Scotland were part of a group that organised and hosted an event called Community Shops & Pubs: Making it Easy. The event was designed to enable communities take action to secure the future of their local shop or pub by helping them to better understand what projects of this nature entail and the support that is available to them. This was a fantastic event was well attended by community groups from across Scotland who were able to access advice on fundraising, governance and community engagement. Attendees also had the opportunity to speak to those already running community businesses and to learn from their experience.

On the day we caught upGillian Kirton with some of the speakers from the event to find out what key bits of advice they would give to community groups considering setting up their own community business.

Gillian Kirton, project manager for Co-operative Development Scotland was there on the day and shares some of the key insights.

You can also hear directly from them in our latest video.

  1. Ask for help– Linsay Chalmers- South Cowal Community Enterprises.

South Cowal Community Enterprises joined the line-up of speakers on the day to share their experience of taking over the local shop and post office on behalf of the local community. She identified two key pieces of advice for groups considering doing similar. The first is to ask for help.  There are lots of groups out there that you can have initial discussions with who can help get your idea of the ground or sign post you to the right support organisation for your community’s business needs. Her second piece of advice is to visit other similar organisations as this is a great way to hear first-hand about the practicalities of running a community business.

  1. Learn from others– Chris Cowcher- The Plunkett Foundation

Chris is part of the Plunkett foundation who are the lead organisation in helping rural communities across the UK address their needs through community business. Chris recommends speaking to other similar organisations so you can learn from their experience. Plunket have made this easier by producing a map of community businesses throughout the UK so those who are new to this type of venture can identify similar organisations close to them to get in touch with. The Plunkett Facebook groups are another way to access expertise from existing organisations (https://www.facebook.com/groups/communityshopsnetwork/  https://www.facebook.com/groups/communitypubsnetwork/

  1. Choose the right legal structure- Suzanne Orchard Co-operative Development Scotland

Suzanne is part of our team at Co-operative Development Scotland and the advice she gave on the day was about taking the time to choose the right structure for your organisation. There are different types of community businesses and it isn’t unheard of for the wrong model to be put in place which can then result in you facing barriers further down the line. By accessing the support mentioned and doing your research, you can identify the right option for your community and be best placed to achieve your goals.

  1. Just go for it- Catherine McWilliams, Development Trust Agency Scotland

Catherine took the opportunity to highlight how successful community shops and pubs are. Community shops have demonstrated a 96% success rate and at the time of the event no community pubs were known to have failed. If you have ambitions to develop a community business, then you’ll never know unless you try!

Our next Community Business: Making it Easy event takes place 2nd September. Find out more and register here.

Co-operative Development Scotland is the arm of Scotland’s enterprise agencies that supports business growth through employee ownership and co-operative business models. If you would like to find out more about community co-operatives visit our web page.

There are lots of different ways to go about setting up a community business and a community co-operative is just one option. If you are not sure where to begin, get in touch with us and we can talk you through our support and sign post you to one of our partners if their support better meets your needs.

Partners: Plunkett Foundation Community Shares Scotland, DTAS, Co-ops UK

 

Glasgow Canals Co-op

As we continue to Celebrate Co-ops Fortnight, we thought it was the perfect opportunity to catch up with Co-operative Development Scotland client, Glasgow Canals Co-op. Anna Young, Project Manager for the organisation, took part in a Q&A with us so we could find out a bit more about the Co-op, its purpose and how they #KeepCooperating.

Tell us a little bit about yourself and what attracted you to the role in Glasgow Canals Co-op.
Anna YoungI’m Anna Young. I’m the Project Manager for the Glasgow Canal Co-operative and have been working with the organisation for just over a year. I was attracted to the job because I’m interested in the regeneration of the canal waterway, particularly the role that arts can play in bringing it to life, and I’m keen to support its development and use as an asset for the community. It is an incredibly varied job and I work alongside numerous creative businesses at The Whisky Bond which is located right by the Forth and Clyde Canal near Speirs Wharf.

What do you like about working for a co-op? How does it vary from other organisations you have worked for in the past in terms of culture and purpose?
The Co-op has 25 member organisations who are involved with heritage, sports, arts and the community. This includes grassroots organisations and national bodies and makes for a really dynamic and diverse mix of people and skills. The organisation has been shaped by its members and is very much member led.  Prior to this role I worked for West Lothian Council for many years, so this is quite a change in terms of the set up, but the collaborative working approach is the same.

Can you tell us a little more about The Glasgow Canal Co-operative?
The Glasgow Canal Co-op was formally established in early 2018 and aims to ‘unlock the potential of the canal to create a vibrant neighbourhood for people to live, work and visit.’  Our area focuses on the stretch of the Forth and Clyde Canal between Port Dundas and Firhill Basin. The area is a real hub for innovation and creativity and the Co-op was formed to help it thrive.

Many fantastic projects, events and activities had been delivered around the canal prior to the Co-op setting up and Scottish Canals has regenerated and developed significant parts of this canal section and continues to do more. The Co-op was developed to strengthen connections between canal-based organisations and encourage people to work together to help shape the area’s growth, and to help deliver events, secure ongoing funding and further promote the canal area.

 Members include organisations with a national remit including the National Theatre of Scotland and Scottish Opera, incredible sports venues such as Pinkston Watersports and The Loading Bay Skatepark.  This is in addition to the Hamiltonhill Claypits Local Nature Reserve Management Committee, Glasgow Sculpture Studios and Agile City to name just a few. Each bring unique experiences to the table and through regular meet-ups and working groups we share ideas and offer mutual support.  Our setting, on the Forth and Clyde Canal, is a wonderful asset with a rich heritage and is a tranquil space close to Glasgow city centre and a green transport link.

Glasgow Canals Co-op

 

What have been the key successes to date for Glasgow Canal Co-op?
Some of our most recent projects include rolling out skills training programmes so our members could access the learning and support they needed to progress their business activities. We have worked closely with Glasgow City Council over the past couple of years to support the delivery of a successful National Lottery funded Great Places project. This has been a really positive scheme that has kick-started many pieces of work around our canal area including the development of a Canal Cultural Heritage and Arts Strategy plus support to deliver our annual Glasgow Canal Festival. It also enabled us to recruit our PR and Digital Officer which has been instrumental in raising the profile of the Glasgow Canal.

This has also allowed us to award funding to a number of smaller local projects which will all celebrate what the area has to offer and make the canal’s heritage easier for people to access and learn about. There are some brilliant projects in the works from community pottery and cookery to boat taxis and trips.

The Canal Co-op puts on and coordinates the Glasgow Canal Festival. This event is an opportunity to celebrate the canal, the community and the assets that are here. We plan a day of arts, sports, family fun and nature for all which takes place along the canal every year. Through the festival many members, such as Carnival Arts, come together to support the development and delivery of the programme.  We work with many local charities such as Free Wheel North and Bike for Good and strive to make the event as accessible as possible.  Unfortunately, like all summer events we had to postpone for this year, however we are hoping to deliver a couple of smaller events closer to autumn instead.

What are the plans for the Co-op in the short and long terms?
We have recently secured funding from Scottish Enterprise which will support our sports venues, The Loading Bay Skatepark, Glasgow Wake Park and Pinkston Watersports, to work together to develop a shared digital platform offering bookable visitor experiences.  This will help to strengthen their offer so we can reach out to a wider leisure audience. It will also help to raise the profile of the Glasgow Canal and its many other assets.

Longer term, we will continue to work on projects which raise the profile of the canal as an accessible place for the community, for events and to visit and work. 

What does working together allow you to do that couldn’t be achieved by the individual co-op members on their own?
The value of collaboration cannot be under-estimated.  It allows us to share ideas, pool our resources, support one another, and strengthen our offer.  The breadth of knowledge and skills within our organisation is immense and members are quick to share their own experiences for the benefit of others.  It is nice to be part of something and work with organisations that adopt a similar ethos to your own.  Becoming a Co-op enabled members to formalise their activities and this has also made it easier to access funding.

The impacts of COVID-19 have been far reaching and unprecedented. During these difficult times we have seen amazing examples of people pulling together to support each other thought the crisis and it is these stories that Co-ops Fortnight 2020 is shining a light on. Has being a co-op at this time been of benefit to you and how has being part of a co-op helped the businesses involved?

It has been an incredibly difficult time for so many people including many of our members and there have been some heart-warming examples of our members working together to support the community during this period. For example, Glasgow Sculpture Studios and Queen’s Cross Housing Association have developed a new creative programme called Sculpture Club at Home.  People can join in with free creative workshops enabling families time to spend time together, get creative and stay connected. Craft materials and worksheets are delivered to locals through Queen’s Cross Housing Association and anyone can join in online.

To find out more about collaboration and setting up a consortium co-operative visit: https://www.scottish-enterprise.com/support-for-businesses/business-development-and-advice/work-with-other-companies

 o find out more about Glasgow Canals Co-op, please visit: https://glasgowcanal.com/

Co-ops Fortnight 2020

Over the next two weeks we join our partners in celebrating Co-ops Fortnight. COVID-19 has left us facing extreme challenges for both public health and our economy, but positive lessons are being learned during this crisis, and we all want to harness this new culture of co-operation to change society for the better. Looking at this year’s theme of #KeepCooperating we caught up with Darah Zahran, team leader at Co-operative Development Scotland to get her take on why co-operatives will play a key part in our economic future.

Portrait of Darah Zahran, Social Economy Manager at Scottish Enterprise. Taken 22-03-19

“Among the sector, the benefits of co-operative business models are well known. Built on their values, co-operatives don’t aim to make profit for investors and disconnected shareholders but place at the heart of what they do a set of principles including democracy, concern for community and distribution of wealth to benefit all members. Interest in co-operative and other inclusive business models such as social enterprises has steadily been growing for some time but the arrival of COVID-19 has fast-tracked these models into the spotlight with employees, and employers alike looking for ways to do business better.

COVID-19 has been first and foremost a health crisis, and one which has demonstrated how closely interlinked our public health and economy are. The full scale of the economic impact will not properly be understood for some time but we know that protecting public health has led us into a period of economic downturn which will have serious implications for the population globally for the foreseeable future. This crisis is devastating, and it highlights many lessons to be learned about the way we have allowed our economy to determine our wellbeing.  Now is the opportunity to change our mind sets and recognise that we can change our approach so that the economy better supports public health. Scotland has declared its priorities for a wellbeing economy for some time and now we have the opportunity to embrace what that actually means and build a fairer and more resilient way of doing business.

Co-operatives are known for their resilience. A report recently published by Co-operatives UK reveals co-ops have almost double the chance of surviving the first five years with 76% of co-ops still operating after five years compared with 46% of all new companies. These co-operatives are more agile and adaptable and are able to provide local solutions to this current crisis and, by putting democracy, equality – and particularly social and environmental impact – at the core of their existence, they should be recognised as part of the solution for a future wellbeing economy .

Stories of resilience directly related to COVID-19 have started to emerge from the sector. Never has the role of the community shop been so important and we have seen examples of Community owned shops working extremely hard to ensure supply chain resilience and that their communities can access the supplies they need. Crunchy Carrot in Dunbar and Dunshalt community shop are both excellent examples of this.

This momentum is continuing to grow, with North Ayrshire Council the first Local Authority in Scotland to launch a Community Wealth Building Strategy. Co-operative Development Scotland are excited to be part of this partnership by providing support on inclusive business models such as co-operatives, employee owned businesses and social enterprises. We see this as a very practical response to the economic crisis we are now in and a solution to create local wealth and embed fairer working practices through well-established models that largely reflect and respond to local economic issues on the ground. It is exactly the kind of response needed in the current climate as we aim to Build Back Better.

2020 will no doubt go down as one of the most challenging years we have all faced for many reasons. But we have an amazing opportunity to change and build inclusive values into the mainstream and avoid a return to business as usual.  As we embrace a busy year ahead, we are here, ready to advise, assist and support more co-operatives get off the ground.

To find out more about Co-operative Development Scotland, visit our home page.

Introduction to community co-operatives

As our thoughts turn to what our economy will look like post COVID-19, there are calls not to return to business as usual. There is an opportunity to create a fairer and more democratic alternative to what we’ve had in the past and community wealth building and co-operative business models will play a key role in that.
Suzanne OrchardIn our latest blog, we catch up with Suzanne Orchard, our specialist advisor for co-operatives to find out more about community co-operatives and why communities in Scotland are turning to this model to both safeguard vital local assets but also to generate economic benefit for the areas they live in.

What is a community co-operative?

A community co-operative is a type of community enterprise which operates primarily for the benefit of the local community.

Sometimes people from a community will come together to save a valuable local business or amenity facing closure, often the community shop or pub. It could also be an essential local facility facing closure and we have had an example of a community in Scotland who used the model to save their local school (Strontian Primary School). There are also examples of developing a business or project that offers fresh economic, social and environmental benefits such as Glenwyvis Distillery.

How are community co-operatives run?

Community co-operatives are controlled by their members – individuals from the local community who have invested in the enterprise through the purchase of community shares. All members have an equal say in decision making, regardless of how much they have invested. The profits may be invested back into the business or distributed among members but one of the defining characteristics is that the business is sustainable and does not extract large amounts of profit.

The survival rate of co-operatives indicate how well these models can work. Overall – 80% of new co-operatives are still trading after five years compared to 44% of new companies (Sources: comparing Office for National Statistics data with Co-ops UK’s datasets). Community shops and pubs in particular do very well with a survival rate of 94% and 100% respectively (Source Plunket foundation). The importance of local shops has been highlighted by the current COVID-19 crisis. With local shops proving vital lifelines to their community, it is anticipated that interest in community co-operatives will continue to grow if these amenities are deemed to be at risk.

What support is available?

If you are interested in setting up a community co-operative, Co-operative Development Scotland can provide support to help you talk through your ideas and decide the best way forward at the initial stages. We provide support to setup a community benefit society if you decide this is the right model for your community enterprise but we work with a number of partners including Community Shares Scotland, the Plunket Foundation and Co-operatives UK to help you access the support and expertise you need which ever model you opt for.

To find out more about our support for community visit our website www.scottish-enterprise.com/community-co-ops