What is an Employee Ownership Trust?
An Employee Ownership Trust is a mechanism that allows business owners to sell some or all of their business to the employees. The employees shares are held in the EOT, not directly by employees.
The Government established the EOT in the Finance Act 2014. The purpose of the EOT was to encourage employee participation and ownership in the business they helped build.
How an Employee Ownership Trust Operates
The Employee Ownership Trust acquires a controlling stake in the company – at least 51%, as opposed to just holding funds or assets. Unlike traditional employee benefit trusts, an EOT must ensure equal benefits for all employees, but there is the ability to differentiate based on length of service, seniority, etc.
The price for the controlling stake is determined based on an independent assessment of market value. Once the previous shareholders have been fully compensated for their shares, all employees collectively receive the economic benefits typically associated with shareholder ownership.
As a trust for the benefit of all employees, an EOT establishes indirect employee ownership, with employees being beneficiaries of the trust that holds the controlling share.
Is the EOT right for you?
An EOT is certainly a tax-efficient exit strategy, but its real benefit is in the speed and certainty of the transaction. You will be selling to a known buyer and will not have to worry about whether the transaction will complete or not.
The EOT offers substantial advantages to exiting shareholders, employees, and the business itself. While it may not be correct for all businesses, an EOT is particularly well-suited for those seeking to exit a business while preserving their legacy and prioritising employee welfare. It is an attractive alternative for those not inclined towards a trade sale or management buy-out.
For business owners deeply involved in day-to-day management, an EOT facilitates a gradual transition, with continued operational success and a smooth leadership succession.
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"For business owners deeply involved in day-to-day management, an EOT facilitates a gradual transition, with continued operational success and a smooth leadership succession."
Establishing an Employee Ownership Trust
The existing owners set up an Employee Ownership Trust, typically integrated into their exit and succession planning. A comprehensive guide is available to businesses seeking to navigate the intricacies of EOT establishment, providing insights into eligibility and how it is done.
We take care of this step in the legal implementation phase.
Government Support for EOTs
The government's backing of Employee Ownership Trusts comes from the proven success of an employee 'shared capitalism' model, which enhances engagement, productivity, job creation, and retention. This ownership model serves as a countermeasure to short-term capitalism, fostering enduring ownership structures and tangible employee benefits, contributing to a long-term strategic outlook and increased business investment.
Employee-owned companies often exhibit a commitment to corporate and social responsibility, actively engaging with local communities. The government views this as a catalyst for greater business performance, making successive administrations fervent advocates of Employee Ownership Trusts since their introduction.
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How We Can Assist You
A sale to an EOT marks a significant milestone for owner-managed businesses. It is more than a tax efficient exit, it’s a shift in how you look at the business. We recognise this can be a big step for you, so we offer comprehensive support, encompassing an initial review of objectives, a feasibility and valuation range study, structural advice, and on going support for 12 months after the sale.
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