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What are the advantages and disadvantages of companies being 100% employee-owned? Show more Show less
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In some countries like the UK, company ownership has begun to trend towards employee-ownership (also called ESOPs). This allows essential employees to become shareholders in a given company. Despite the advantages this can afford founders, there are also some disadvantages that can entail with this approach to running a company.

No, making a company 100% employee-owned can be disadvantageous Show more Show less

Putting the whole of a company in the employee's hands is more disadvantageous than it is advantageous.
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Setting up an ESOP is both expensive and difficult

Due to how involved and complex ESOPs are, they tend to be very expensive to set up. An ESOP's complexity would also make it difficult to efficiently run the company.
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The Argument

The benefits ESOPs can provide both employees and owners do not outweigh the complexities and the overall costs associated with the business venture. Setting up the ESOP can prove challenging since there needs to be a specific administrator for the program. This administrator exists because an ESOP also doubles as a kind of retirement plan, and the company will need someone to handle annual independent business appraisals. [1] Features of a business that are normally separate from one another become complicated due to the relationship between owner and employee. In the realm of finance, seeking external aid for ESOPs can be challenging as well. According to a report by the Nuttal Review of Employee Ownership, ESOPs can face more challenges than other types of companies, particularly when it comes to sourcing finance for a transition. Banks might feel that they lack the necessary resources, expertise, or analytical tools. As a result, they would be less likely to fund them or grant them a loan. [2] If an ESOP is unable to acquire outside help if they need it, this can considerably affect their level of success. In turn, it would appear more profitable to set up a different kind of company, since they would be less likely to face the same initial financial challenges an ESOP might. Overall, ESOPs, while very appealing visually, could end up becoming more of a hassle than they are potentially worth.

Counter arguments

Setting up an ESOP looks like it is difficult, but so is setting up any company. While ESOPs are complex in their own right, this does not necessarily mean they are more complex than other kinds of companies. [3] Starting up any company has its complexities and drawbacks. What it would depend on is what kinds of risks one is willing to make in setting up their company, how much time they choose to invest in it, and their willingness to understand the type of company they wish to set up.

Proponents

Premises

Rejecting the premises

References

  1. https://bizfluent.com/list-7308255-esop-disadvantages.html
  2. https://www.theguardian.com/social-enterprise-network/2013/jul/22/co-operatives-and-mutuals-social-enterprise-blog
  3. https://www.nceo.org/articles/reasons-esop#:~:text=Sellers%20to%20an%20ESOP%20can,than%20selling%20some%20other%20way.&text=However%2C%20the%20ESOP%20pays%20cash,and%20partly%20in%20an%20earnout.
This page was last edited on Monday, 9 Nov 2020 at 16:25 UTC