Employers should consider all implications before transferring
any ownership interest in the business to employees. Sharing ownership
with your employees can create numerous new problems. These problems
stem from the new relationships you would have to maintain with the new
co-owners. By transferring ownership to employees, you grant new rights
to the employees beyond profit sharing. Owners have rights to examine
all of the business transactions. As a corporate officer, you would
become a fiduciary for these new owners. A fiduciary has a legal
obligation to act primarily for the benefit of the other shareholders.
This means that you could be sued for various acts such as shifting
corporate opportunity or running certain expenses through the
corporation. Even if no litigation resulted, the new co-ownership
relationship could create added difficulties that would not otherwise
exist.
On top of the problems that could arise, the transfer of ownership may not have the intended result. Some employees are motivated by ownership. Others are not. It is possible that some of the employees who acquire an ownership interest will not alter their performance. If you subsequently decide that sharing ownership is not a good idea, it could be difficult to buy back the issued shares.
There are a number of other incentives that could be used to motivate employees without transferring actual ownership. These include profit sharing plans and phantom stock plans.
On top of the problems that could arise, the transfer of ownership may not have the intended result. Some employees are motivated by ownership. Others are not. It is possible that some of the employees who acquire an ownership interest will not alter their performance. If you subsequently decide that sharing ownership is not a good idea, it could be difficult to buy back the issued shares.
There are a number of other incentives that could be used to motivate employees without transferring actual ownership. These include profit sharing plans and phantom stock plans.
