Employee Owned Trusts (EOTs)
October 3, 2022
In 2022, we’ve seen an increase in the number of clients looking to sell their business to an Employee Owned Trust (EOT). This reflects the national trend for owner-managers looking to sell their business in this way.
Employee owned businesses are ones that are totally or significantly owned by their employees.
The economic contribution of employee ownership in the UK is significant and is growing according to the Employee Ownership Association.
“Employee ownership delivers 4% of UK GDP annually. Employee owned businesses achieve higher productivity and greater levels of innovation and are more resilient to economic turbulence. They also have more engaged, more fulfilled and less stressed workforces.” – Employee Ownership Association
If you are an owner-manager and want to explore all your exit options – then it would be sensible to include an EOT in your thought process.
The sale of your company (or the majority of its shares) to an employee ownership trust (EOT) brings about certain tax reliefs for owners and employees.
As a result of a sale to an EOT, employees of the company will become beneficiaries of the EOT and may receive tax free payments from it.
Advantages of Employee Owner Trusts (EOTs)
- Owners can sell their shares free of Capital Gains Tax and on an uncapped basis. In addition, the employee-owned company can offer income tax free bonuses to the employees of up to £3,600 per year.
- The deal can be structured to enable a smooth gradual exit for the business owner. This is helpful where there is vendor finance as part of the sale consideration and owners are dependent on the successor management team to generate profits to pay this. The owner can continue in executive or non-executive roles and/or can be given veto rights in relation to key decisions without putting tax reliefs at risk.
- For many business owners selling to an EOT, employees will be the business’s biggest asset. Employee job security is increasingly important for owners who want to protect their legacy and hand over to a trusted team. A deal like this gives confidence to employees that their position is valuable.
- There can often be high levels of employee engagement where employees actually have a stake in the business and an employee-owned company can often have a more positive culture than one that’s been sold to a third party. This sense of ownership can help the transaction progress in a positive manner.
Selling your business
Selling your business is a major life event and it is important that you have the right team of advisers on board to help facilitate it.
Most business owners only complete one corporate finance deal in their life – so it’s essential to do it right. Our specialist advisers at Alexander Knight & Co play a key role in helping you to do this.
We realise that every transaction is unique and multi-faceted, with many moving parts. But we never lose sight of the fact that you, as an individual, are at the front and centre of the entire process.
And we pride ourselves on communicating with our clients in plain English so they fully understand every step of the transaction journey from the first to the last.
We have wide-ranging experience in preparing all types of businesses for sale in the most tax efficient way – including Employee Owned Trusts.