Fieldfisher advises on first move to employee trust ownership in US biomolecular industry
Graeme Nuttall, a partner in the Tax & Structuring Group at Fieldfisher and author of the UK government report into employee ownership, The Nuttall Review, has advised on the first move to employee ownership in the biomolecular industry in the United States.
Founded in 2007 by Drs. Russell Hart, Nancy Schmidt and Barbara Scheuer, Arbor Assays, a small Ann Arbor company with a global reach, designs, develops, and manufactures detection and immunoassay products for important research biomolecules.
On 1 January 2017, Arbor Assays (A2) became an employee-owned company through the use of a “perpetual trust.” The owners sold their interests to the employee trust and provided seller financing. Arbor Assays now has 11 employee owners. While a relatively new technique in the United States this arrangement is more common in Great Britain where “perpetual trusts” are widely recognized.
Until the end of 2016 Russ Hart and Barb Scheuer each owned 45% of Arbor Assays while Nancy Schmidt owned the other 10%. Bobbi O’Hara, R&D Project Manager at Arbor Assays, led the employee group through the transaction, having been elected as the Employee Representative. Russ, Barb and Bobbi are Directors of the Perpetual Trust that now owns all the stock of Arbor Assays, Inc.
This is the second transaction of its kind in America. The first company to adopt the UK employee ownership model was Wimberly Allison Tong & Goo (WATG), the leading international design consultant to the hospitality, leisure and entertainment industries. Graeme also advised on that transaction.
The transaction involved a team of professional advisers. A2 used Bruce Elliott at Conlin, McKenney & Philbrick, and Christopher Moceri at Jaffe, Raitt, Heuer & Weiss to handle US legal work. Atty. Deborah Groban Olson, Executive Director of the Center for Community Based Enterprise (C2BE), was hired to represent the employees during this period and to work with Arbor Assays to ensure that the company is run for the benefit of the employees.
This method of employee ownership maintains the company perpetually for the benefit of its employees, while eliminating the need for the company to repurchase shares from terminating employees. Financially, the employees will benefit because, in addition to their basic compensation, the trust will annually allocate revenue not needed for company operations or future investment, to participating employees.
Russell Hart, founder and managing partner, said: "We want Arbor Assays to remain an independent and successful business and were impressed by how the perpetual trust model can achieve this. Shares are held in trust permanently for all employees, rather than allocated among staff as happens with ESOPs. This means there are no repurchase obligations that can destabilize a company's ownership. Profits that might otherwise be distributed to investors are available to pay out to staff as bonuses. We hope our adoption of this business model will encourage others in the US to do likewise and for the US tax authorities to consider tax breaks to encourage its take-up, as has happened in the UK."
Bobbi O’Hara said: “Making the decision to transition from private ownership to perpetual trust speaks volumes about the faith in our collective competencies and the importance in taking care of each other, not just as coworkers, but as a community with a common goal. As employees, we are excited to see how we'll shape our shared responsibility and direct this opportunity to have an impact for the benefit of us all."
Commenting on the news Graeme Nuttall said: "It was a pleasure to work with Arbor Assays to implement the first employee trust owned bimolecular company in the US. Employee trust ownership works well as a business model because this form of ownership avoids the complexities of "direct" ownership models. The trust model of employee ownership is long established in the UK. The UK's John Lewis Partnership, with its successful supermarkets and department stores, employs almost 89,000 permanent staff and is 100% employee trust owned. Its trust ownership started in 1929. There are many other examples that demonstrate this is a tried and tested way of owning and running a business. As a result of the Nuttall Review of Employee Ownership the UK Government introduced new tax reliefs to promote the trust model. It is great to see this alternative approach to employee ownership being adopted in the US. US owners I speak to say 'I wish I had heard about this years ago."