Both privately owned companies and PE-backed companies often use a share structure made up of multiple share classes, each with distinct rights. Very often such companies do not pay dividends, aiming to build capital value ahead of an exit.
Another question prominent in the minds of business owners would be what would happen in the event of an exit – would it mean a bonanza for employees? Or for the Treasury? Or would the IOF structure be a ‘poison pill’, killing off potential future transactions?
Taken at its crudest, the IOF structure could be seen as an effective 10% levy on dividend payments, with the social dividend fund as the main beneficiary; a potentially significant cost for companies.
Another concern will be the constitution of the management of the IOFs, how the trustees will be selected and whether there will need to be an extensive process of employee consultation before votes.
There are worries that this measure could lead to a number of market-distorting behaviours: groups could fragment to fall below the headcount limit; employers may choose not to expand their operations for fear of becoming subject to the rules; companies could de-list from London in favour of a listing in Frankfurt of New York.
It is understood that the Shadow Chancellor’s team believes that the ten-year build up to the 10% fund is sufficiently incremental so as not to drive avoidance activity. I don’t think it unfair to express some scepticism on that point or to wonder whether lawyers and accountants might be the main beneficiaries of this measure.