How To Start an Employee-Owned Company

Employees working in a company enjoy several benefits: they get bonuses when business is good, they get to take paid vacation leaves, they are entitled to different kinds of insurance, and some even get cars. But one idea that has not quite caught on yet is the notion of allowing employees to take ownership of the company.

There are, however, several benefits to having an employee-owned company. One great example is the increased motivation of the employees to work not only for themselves but for the company itself since they knew that they would be financially rewarded for whatever contribution they would be giving to the company.

This means that employees will be more willing to go another extra mile, thus increasing the production, sales and profit of the company.  Employees will also become more loyal to the company and it will lead to better performance and a better relationship. Another advantage of employee-owned business is that they can raise more money by selling the shares to the employees and then further expand the business. Also there will be a higher probability that the key personnel and employees will be retained by the company because of their personal financial investment.

Keeping in mind all the aforementioned advantages, how can you start  an employee-owned company? Below are the steps to follow:

Step 1

Identify what kind of employee ownership will be used in allocating the equity. The most common is the employee stock ownership plan (ESOP) wherein the stocks of the company are acquired by the employees in a form of pension plan, retirement plan or equity compensation plan. 

Another model is the performance based plan where employees who show excellent service and performance will get a share of the company and are being offered as bonuses. The company may also offer the stocks to the employees for them to buy directly at a certain price. In conjunction with this the company may also offer financing programs at a certain interest rate that would help the employee purchase the stock.

Step 2

Create a plan based on the strategy that you will use. The plan explains how a certain employee can become eligible in employee ownership. It will serve as a guide as well as a goal for every employee who wants to own stock in the company.

Step 3

Create a law or rule that would determine the role of and status of every member especially for the ones who started the business. Also establish the control of the company. Who would be in charge of the decision making? Would it be based on who has the greater equity or would it be based decided by vote? A system of distributing the equity must also be developed not only to the incoming employee-owners but to the ones who might decide to retire or leave the company.

Step 4

Seek assistance from lawyers and accountants to check the details of your bylaws and also to acquire the necessary forms or any legal documents needed for the company to implement such plans. It is also advisable to ask and plan with those persons who are experienced in employee-ownership about some issues that may arise as well as the solutions and preventive measures. Also get the advantages of gaining other resources by joining groups or associations for employee-ownership.


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