Is an indirect form of employee ownership in which a trust holds a controlling stake in a company on behalf of all its employees, and provides an incentive for owners to sell a controlling stake in their business, our team at Steve Pye & Co will provide you with a personal service throughout the whole transitional process.

What is an Employee Ownership Trust (EOT)?

An Employee Ownership Trust (EOT) enables a company to become owned by its employees. This can be set up by the company’s existing owners, perhaps as part of their exit or succession planning strategy, or by founders starting a new business which they wish to be employee-owned.

The Employee Ownership Trust was created by the Finance Act 2014, to encourage more companies to become employee owned.

But more Importantly for many business owners, an EOT creates a tax break to those selling their shares to an EOT, and they may do so free of capital gains tax.

How does an Employee Ownership Trust work?

Normally, an EOT will acquire a controlling interest in a company from its current shareholders, and this needs to be at least 51%.

A price will be agreed (based on an independent assessment) which must not be more than market value and payment will then be made in instalments, the EOT being funded by the company from its future profits. Sometimes, a company owner will give their shares to the EOT but in most cases they will wish to be paid. It is also possible to arrange an external loan which will enable the purchase price (or a larger part of it) to be paid in one go.

An EOT will be run by its trustees. Their role will not be to manage the company (this will continue to be the role of the management team) but to ensure that the company is being well led and in a way which maximises employee engagement and commitment.

What are the benefits of an EOT?

For a private company owner wishing to retire but looking for an alternative to a trade sale, an EOT is worth considering. It places the business in the hands of people who understand it most, have a strong personal commitment to its long term success and are highly motivated by their ownership to make it succeed.

Benefits for your company include:

  • Ownership succession which preserves your business and its culture
  • A stronger performing business
  • A commitment to the longer term
  • A more resilient and adaptable business

Possible benefits for your employees include:

  • Builds a clear shared purpose and collaborative way of working
  • Employees who are owners are more engaged and committed
  • Income tax free annual bonuses

Possible benefits to you as a business owner include:

  • Leadership succession can be implemented over time
  • As a retiring owner, you can be paid market value for your shares
  • No capital gains tax
  • Employee ownership can be implemented at a pace that suits you

If you are considering an EOT, please contact us on 01553 672888, and we will be happy to advise you further.