Why it matters how your business is owned

From PLCs and private equity to crowdfunding and co-operatives, there are now so many ways to run a company it's hard to know which way to turn. We navigate the ownership maze.

by Jeremy Hazlehurst and Jack Torrance
Last Updated: 26 Nov 2015

Once upon a time business owners only had a few options. If you were small, you were a sole trader. If you got larger, you became a limited company. If you got really big, you would float on the stock exchange. Barristers and accountants formed partnerships. There were a few co-ops and family businesses about too, but they often felt like throwbacks.

How things have changed. These days owners’ aims are varied - some small businesses are more focused on doing good than just doing well and prefer to be mutuals, not-for-profits or co-operatives. A full stockmarket listing is no longer the gold standard it once was, and family firms are rediscovering the virtues of heritage and their steady, long-termist model. Private equity has had it booms and busts but the buyout kings are here to stay, and start-ups in search of finance can now find their best option is to crowdfund online rather than go cap-in-hand to the bank.

Even the government plays a role. It is trying to encourage employee ownership of businesses, and since legislation created Limited Liability Partnerships there has been a boom of companies moving to that model.

But which type of ownership is best, and for whom? We looked at 10 companies with very different structures, to see what the pros and cons are.

1. FTSE 100 PLC

Pros: You can raise money quickly, and you are an undisputed big beast with a top-notch reputation.

Cons: Endless quarterly reporting cycles, and you have no control over your owners.

BT Group

Turnover: £17.85bn
Employees: 88,500
HQ location: London

Figures: 2015

Being a bona fide behemoth ain’t easy, especially when you are a household name. One misstep and you are all over the front pages, not to mention the business ones. Politicians and columnists smelling blood are sure to stick the knife in.

At the same time you’re on a constant merry-go-round of quarterly reporting, and explaining to an unruly mob of shareholders - including pension funds, mutual funds, investment banks, employees and ordinary punters - why their dividends aren’t as high as they'd like. Not to mention the share price, which is at the mercy of global markets and panicky City traders.

But there are big benefits: kudos, for a start. ‘If you are at the top end of the FTSE it gives you credibility, as long as you have a track record to back it up,’ says Tony Chanmugam, group finance director of BT Group. Overseas especially, it opens doors, he says. Secondly, you can raise cash. ‘The biggest advantage I think is access to funds and the liquidity of the funding.’

He reckons that BT takes a long-term view, that there are never any conversations about quarterly targets. Can that be said of all publicly owned firms? Ask anyone who has ever been held over a barrel by an activist investor or a vulture fund, demanding that a firm changes the CEO or ditches a cherished project.

While FTSE 100 companies no doubt prefer to have long-termist investors, ultimately they have absolutely no say in who owns them. ‘The reality is that you can't control who buys and sells your shares,’ says Chanmugam. ‘You have to manage the business as best you can and let the shareholders look after themselves.’


Pros: Private equity's money and know-how puts rocket fuel into a business.

Cons: Growth is usually funded by debt, and the owner has no interest in ensuring it is sustainable long term.

Pret a Manger

Turnover: £510m
Employees: 9,681
HQ location: London

Figures: filed accounts 2014

The image of private equity firms as a bunch of asset-stripping chancers is no doubt exaggerated. But by how much? With investors usually keen to cash out after five to seven years, the emphasis for any private equity house will always be to grow a business fast and get out while the going is good. If that means firing staff, taking on loans and selling the premises, then so be it.

‘There is a presumption towards growth,’ is how Clive Schlee, the CEO of Pret a Manger, puts it, adding that when the sandwich chain was bought by Bridgepoint Capital in 2008, the new owners ‘put a fire under that’. Bridgepoint has been ‘respectful of Pret’s values’, says Schlee, and also ‘more disciplined than we would have been about returns on capital’. It is not only money, either, that the owners bring, but the contacts and expertise to move into new markets such as France and China.

Fast growth is not necessarily bad, and if a business is ready for it - as Pret evidently was - then private equity can really get it motoring. The reliance on leverage and debt, however, might give more cautious souls the heebee-jeebies. Although Pret's turnover topped half a billion pounds for the year ending 2014, its debts of £272 million and interest payments of £13 million still left it with a £33.4 million loss. That might not hinder a money-spinning exit (rumours of a 2016 IPO surfaced again recently), but what it means for the business long term, nobody really knows.


Pros: The managers make sure they do a good job because they own the business.

Cons: Underlings get frustrated. Decision-making is fragmented.

Knight Frank

Turnover: £392.7m
Employees: 12,000
HQ location: London

Figures: 2014

In the UK, an LLP is a partnership in which the partners all co-own the business, but are not legally responsible for the misdeeds of other partners, and cannot lose more than they invested. LLPs have fewer reporting obligations than limited companies and there are tax advantages. They are popular in the professional services sector - for example, law firms, accountants, estate agents.

An obvious downside is that once you are a partner you can vanish to the golf course, let your minions do all the work and still get paid a fat wodge. The minions get miffed. Another is that LLPs can't easily raise cash - several LLPs floated in recent years to fund expansion.

It can work well, though. Estate agent Knight Frank, which is owned by 63 equity partners, had a turnover of £392.7 million in 2013-14. Alistair Elliott, its chairman and senior partner, says that 'professional services and partnership resonate' because it is in partners' interests to ensure they give good advice because their reputations and livelihoods depend on it.

He highlights that the partners are ‘in control of their own destiny’ and highly accountable for the business's decisions. Owners and managers' interests are aligned because they are the same people. And they are cautious with the money, because it is theirs. ‘That doesn't make us slow, it makes us considered,’ says Elliott.

Perhaps the biggest problem with LLPs, though, is that decision-making is run by consensus. There is no room for visionary CEOs, and they cannot react nimbly to problems. And what if partners disagree? It is in their interests to hire in their own image. That brings stability, no doubt, but also a lack of diversity.


Pros: Workers get a say in the running of the company and feel committed. Management is scrutinised.

Cons: Do employees have the expertise to know what is best?


Turnover: £39m
Employees: 460
HQ location: Sheffield

Figures: 2014

Employee ownership is in fashion. The government has pledged £50 million a year to help businesses become employee owned, and the 2014 Finance Bill also offered tax breaks for firms to become employee owned. The theory is that such firms are resilient in downturns, create jobs quickly, and that workers have more 'meaningful' employment and are more 'committed' to businesses they part own.

An example that pre-dates this governmental enthusiasm is Gripple, a Sheffield firm that makes ingenious fencing paraphernalia. It began in 1988 and in 1992 founder Hugh Facey started selling shares to employees. Now, they have to buy £1,000 of shares within a year of joining the company. Facey and vice chairman Roger Hall are donating personal shares, worth millions of pounds, to the ownership company over a 10-year period until 2021.

Why? ‘If you are an entrepreneur you can either set up a business for longevity, or you can sell it. If you sell it there is no guarantee that the new owners won't pillage it, then it will become anonymous and disappear,’ says Andy Davies, the firm's business development director. Gripple aims to ‘bottle that spirit and pass that on from generation to generation so that the business can carry on with the culture it inherently has.’ So, having an altruistic founder helps.

Also, Davies adds, employee ownership is fair. Ownership structures that reward management, and not workers, are ‘pure greed’. Gripple says that employees scrutinise management decisions. The question is, are they always qualified to do so? Do they understand the strategy well enough to correct things if they start going wrong? At a (relatively) small manufacturing business, which makes physical stuff, arguably yes. But could it work at a complex firm with umpteen layers of middle management all with narrow technical expertise? One with locations in numerous countries? Or one with ambitious and self-interested senior staff?


Pros: Simple, focused and flexible.

Cons: Less external oversight.

Wax Lyrical

Turnover: £13.5m
Employees: 130+
HQ location: Cumbria

A listing on the London Stock Exchange might be the gold standard, but the bog standard private limited company is by far the most common form of incorporated business. That's probably because it's so simple to set up. In the UK you just need to stump up £15 and supply some basic information to Companies House and you're away.

Private companies normally have relatively low-aggro governance structures as well. In the most basic model, one owner can choose exactly who they want on the board and therefore effectively exercise power over all of the decisions.

‘I have total control, total flexibility,’ says Mike Armstead, who owns an 80% stake in and is chairman of the scented candles manufacturer Wax Lyrical. ‘I can choose to exit when I want,’ he adds. ‘I can choose when or whether to bring on more shareholders. I can take out dividends if I want... There are all sorts of benefits of owning a private company.’

That's all great for the owner of course, but is it in the best interests of the business itself? ‘People like to know that "Mike's the owner, Mike will look after us." I've worked in big corporations and... certainly the sense of loyalty that you get from an ownership position that you wouldn't get from a big corporate is very significant,’ says Armstead.

Independent private companies also avoid the huge costs of complying with the rules imposed on their listed counterparts, and what some would argue is the short-termism of private equity. Autonomy is good of course, but some might argue that as businesses get larger, the oversight and professional governance that institutional investors bring with them becomes more and more valuable.


Pros: Having their names on it makes owners think long term.

Cons: Can be torn apart by feuding relatives. Non-family managers feel there is a glass ceiling.

Wates Group

Turnover: £1.05bn
Employees: 2,397
HQ location: Leatherhead, Surrey

Figures: 2014

Family firms might not get much press, but they are everywhere. In the UK, the Institute for Family Business says that there are three million, which produce a quarter of GDP and account for over nine million jobs. Lots of research shows that they tend to weather downturns better than their peers, with more stable results and fewer bankruptcies in tough times.

Why? ‘Underpinning it all is a long-term view,’ says James Wates, the fourth-generation chairman of builder Wates Group, who runs the business with four cousins. 'You almost feel that it isn't yours, and you don't want to fritter it away. When my generation took on the stewardship five years ago, we were already thinking about the next generation, and that was 20 years in the future.'

That means there are no frivolous decisions. Having your family's prospects and reputation at stake, rather than just a bunch of anonymous shareholders, also helps owners do the right thing. If you don't, 'people might start to shun you in polite society, ' says Wates.

What about the so-called ‘dark side’ of family businesses? Feuds can and do destroy family firms. And then there is the ‘challenge of nepotism,’ as Wates calls it. ‘We are very clear that not everyone whose name is Wates can have a job,’ he says. Not least because the non-family managers will rebel or leave over useless family members. ‘You cannot have lions led by donkeys.’ The benefits of family ownership are great, but the problem is that managing the downsides can be a job in itself.


Pros: Held accountable by customers who also own the business.

Cons: Larger co-ops can be slow and unresponsive to change.

Fram Farmers

Turnover: £184.5m
Employees: 47
HQ Location: Suffolk

Given the well-publicised meltdown of the UK's best known example, The Co-operative Group, in 2013, you could be forgiven for failing to realise that Britain's wider co-operative movement is booming. Between 2010 and 2015 the number of co-operative members increased by 16% to 14.9 million and the sector's turnover also rose, by around £5bn.Co-operatives can take a number of forms but the most usual model involves ownership by, and for the benefit of, their customers, clients or even members of the local community.

Fram Farmers is a member-owned co-op that operates on behalf of its 1,250 agricultural members across the UK. It markets their produce – primarily grain – far more effectively than any individual farmer could manage themselves, and thanks to the economies of scale it's able to buy supplies such as diesel and machinery at keen prices, too.

Chief executive Richard Anscombe says that being a co-op also gives the organisation a much greater focus on what its customers need - ‘it gets them right to the heart of what we're about and where we're going,’ he says.

The farmers/owners exercise their influence by electing 10 members of the board, and through regional councils. Doesn't that slow things down? Not necessarily. 'If I go to the executive and board and say we need to make a decision on this by Friday - we do,' says Anscombe, though he admits co-operatives with too many layers can struggle to act quickly.

There's certainly a perception that co-ops exist in a fuddy-duddy world where commercial success doesn't matter, but Anscombe is insistent that Fram Farmers' management faces the same pressures as their shareholder-backed equivalents. 'I don't want people to think of co-operatives as open-toe sandal, cuddly organisations where everybody should be paid the same wage,' he says. 'We've got to reward people well and we've got to perform every bit as well as our commercial competitors.'


Pros: Management remains in control, generates attention.

Cons: Chance of spectacular public failure. Unglamorous or complex firms struggle.


Turnover: £1m (forecast)
Employees: 25
HQ location: London

Since the financial crisis made it even more difficult for businesses to raise money, many have been seeking alternatives. One of those is equity crowdfunding, where businesses sell small shareholdings to dozens or hundreds of investors, who sometime put in as little as £10. Long seen as an option for very small start-ups, recent figures suggest crowdfunding now accounts for one-fifth of all equity finance deals, and the size of those deals keeps getting bigger: earlier this year parking space app JustPark managed to crowdfund no less than £3.5m.

From the management team's perspective, there are several upsides. The business remains a private company limited by share capital, meaning you can raise money from a wider audience but without the disclosure requirements demanded by an IPO. And unlike private equity or venture capital investors, crowdfunders don't usually get any say in how the business is run or the composition of the board, and are unlikely to expect dividends.

‘Some of (our backers) are obviously very distant and I've never spoken to them - but we do communicate to them via quarterly updates,’ says Steve Folwell, managing director of Lovespace, a by-the-box storage provider which raised £1.56m last year for a 28.02% stake it sold on crowfunding platform Crowdcube.

But there are also constraints on what kind of businesses can raise money through crowdfunding - armchair investors are much more likely to get excited about a simple, consumer-facing brand they can understand than a complicated B2B company, and you're unlikely to be able to raise more than a few million pounds whatever you're selling.

The fact that crowdfunding is such an open affair is also a double-edged sword. If it all works out you can generate a lot of good publicity. ‘But if you've not got that momentum working for you it's a very public setback. It will inevitably make it more difficult for the business to raise money afterwards,’ says Folwell.


Pros: Focused on social outcomes, not shareholders. Tax exemptions.

Cons: Limited accountability, can struggle to attract the best people.


Turnover: £20m
Employees: 350 
HQ location: London

In a competitive landscape and against a backdrop of austerity, many charities – perhaps the best-known type of not-for-profit organisation – have had to commercialise their processes, in order to keep afloat. Hence perhaps the rising tide of public discontent over eye-catching executive salaries, not to mention those dubious cold-call fundraising tactics, in the sector.

But not-for-profits are about more than just charitable (or otherwise) deeds. The sector encompasses different types of organisations – charities yes, but also limited companies with a charitable or social enterprise status and Community Interest Companies, a new structure created in 2005. Some rely mainly on government grants or contracts for funding, while others make money through trading and by soliciting private donations.

WDP however is a charity, one that aims to help people with drug and alcohol problems move on in life. ‘I hope this idea of a charity as a group of do-gooders is no longer actually the case,’ says its chair Yasmin Batliwala, who says she insists on ‘robust standards of good governance’.

‘We very much function like a business,’ she adds. ‘The only thing we don’t do is make a profit; any [surplus] finances we have we put back into the organisation.’

There are some other differences though. Unlike regular businesses, charities are bound by the rules of the Charity Commission. Fair enough given their social purpose, but from a governance perspective another layer of compliance to deal with. 

Recruitment can be a challenge too – paying top dollar is a financial and political struggle for many not-for-profits. What’s more, in a company limited by guarantee (rather than by shares) the board effectively appoints itself, recruiting new members as and when a vacancy arises. Batliwala reckons it’s still straightforward to get rid of a poor performer, but nonetheless there’s a lot to be said for shareholder oversight.


Pros: More flexible than employment, less hassle than a formal company.

Cons: The owner is personally liable when things go wrong

Jason Bartram Carpentry 

Turnover: Under £50,000
Employees: 0
HQ location: Camberley, Surrey

It’s the favoured status of everybody from plumbers to IT consultants, freelance creatives and buy-to-let landlords. Almost 200,000 people set up as sole traders in the last year alone. Getting started as a sole trader requires almost no effort: just register with HMRC as self-employed and you’re ready to go.

Jason Bartram has been a carpenter for five years, mainly working on new-build houses and extensions, as well as other odd jobs. He says he’s happy to be self-employed because of the flexibility that comes with it. ‘You can have holiday whenever you want and set your own flexible hours. You usually get paid just after each job, which for me is quite good,’ says Bartram.

There’s a flipside to that of course. ‘You don’t get paid holiday,’ he says. ‘And you have to search for your own jobs, do advertising and make sure you’ve got the work there, instead of relying on somebody else.’

Being a sole trader also exempts you from most of the formalities of running an incorporated business – there’s no board and thus no need for formal board meetings, and you don’t have to submit any financial information to Companies House for prying eyes to see. 

Mike Ashley, the notoriously secretive owner of clothes retailer Sports Direct, famously remained a sole trader for years, even after opening dozens of shops. But then incorporation does exist for a reason. If as a sole trader you want to borrow a large amount of cash or enter into a risky contract then you’re liable personally up to the hilt, because your company is not a legal entity in itself.

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