Trusts
Stability is the major long-term financial advantage of having a significant proportion of shares in an employee owned company permanently held by a trust.
The shares in the trust never have to be sold again, whereas shares held by individuals will have to be sold at least once in every generation, for instance on retirement. By 'neutralising' a block of shares in the trust, it's easier for the company to sustain an internal market for the remaining shares – those held by the employees as individuals.
This means that finance can be made available to buy shares from employees who want to sell, more or less whenever they choose. If all the shares are held by individuals, in effect the company has to fund a new buy-out of itself in every generation – something very few companies could afford.
In the employee buyout itself, a trust makes it easier for employees to buy the company because:
- It's only extremely rarely that the employees will be able to buy the company themselves.
- A trust can use the strength of the company to finance the transfer of ownership - individuals don't have to provide the money from their own resources, or mortgage their houses.
- The company, in effect, takes on the debt, and by making the business successful the employees ensure that the debt is paid off without having to take personal responsibility for it.