Charles Palmer is selling his Classic Restorations business to its 18 employees for an undisclosed sum under a succession plan he believes will help to keep it firmly rooted in Scotland.
"Employee ownership was always going to be the right choice for Classic Restorations," said Mr Palmer, who has been running the firm for 30 years.
He added: "Over the years we have been in business, we have employed skilled local tradesmen and have trained many apprentices to keep these skills alive. We have a responsibility to safeguard the future of our young workforce."
Mr Palmer belives the sale will put the company on a stable footing to grow its £1.1 million turnover.
The company, which restores cars produced under such companies as Rolls-Royce, Bentley, and Jaguar, sees scope to grow in the UK and in overseas markets including Germany.
Mr Palmer said he is looking forward to retaining a role at the company during the transition period leading up to his retirement.
The car enthusiast and the firm's employees received help with the sale process from the co-operative development arm of Scottish Enterprise.
Sarah Deas, chief executive of the Co-operative Development Scotland unit, said employee ownership would give all 18 staff a meaningful stake in their company.
She said: "By becoming employee-owned, the company is safeguarding highly-skilled jobs, keeping specialist skills alive and giving the owner the ability to manage his exit from the business over a period of time."
Co-operative Development Scotland said there had been a big increase in the number of employee-owned business based in Scotland in recent years, without giving details.
It said employee-owned businesses with operations in Scotland employ more than 8000 people and account for a combined annual turnover of just under £1bn. This includes businesses run from south of the Border like the group that owns the John Lewis and Waitrose retail operations.
The Glasgow-based Page/Park architecture firm recently moved into employee ownership.
Last week Chris Parr, chief executive of Tullis Russell, said being employee-owned gave the Fife paper-maker greater freedom to plan for the long term than under other ownership models.
A newly formed Employee Benefit Trust has acquired a 25% stake in Alyth-based Classic Restorations. It has an agreement to purchase the balance over the next five years.