Posted by: garispang | June 30, 2009

How to Start an Employee-Owned Company

Giving employees a tangible stake in a company increases productivity and creates a loyal atmosphere that will inevitably lead to greater business success and profits for everyone.
Water MarginStep 1. Identify the employee ownership plan that best suits your needs and objectives. Choose from a performance-based plan in which shares of the company are offered as bonuses in return for outstanding service; a broad-based plan that provides stock and stock options to practically all classes of employees; and a leveraged employee stock ownership plan (ESOP) whereby all stock in the company is purchased by the company on behalf of the employees and is allocated to employees according to a predetermined formula.

Step 2. Write a thorough plan that explains the strategy that will be used to achieve the predetermined level of employee ownership, the procedures that will be used to implement the plan, and the benefits for each class of employee.

Step 3. Contact your banker or financial adviser and obtain the necessary forms to legally implement the plan.

Step 4. Distribute the plan to your employees.

Step 5. Be available to answer any questions or address any concerns your employees may have about the plan.

Tips & Warnings
  • You can adopt any one of these plans whether your company is a start-up or has been in business for years.
  • When deciding on a plan for employee ownership, consider the tax and accounting ramifications, the implications of a dilution of ownership and control, and the effect on stock prices and valuation.
  • Decide what classes of stock will be issued and which classes will have voting power, resale rights and equity dividends.
  • Any plan that will ultimately have so much influence on the legal and financial structure of your company should be written with the aid of an attorney, accountant and certified financial planner.
  • A popular broad-based plan is profit sharing. This is a true motivator once everyone understands that his or her financial security is directly related to the current effort of employees. It’s also a fair plan that generally doesn’t favor management over the general workforce.
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