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Employee Ownership Trust (EOT)

Offers business owners a rewarding exit strategy with significant tax advantages, while ensuring the continuity and integrity of their business through workforce ownership.
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What is Employee Ownership?

An Employee Ownership Trust (EOT) allows a company to be owned by a trust for the benefit of its employees. This model ensures long-term business sustainability, enhances productivity, and is tax-efficient for shareholders seeking an exit strategy. Companies facing ownership succession or wishing to owner exit are increasingly considering a sale to their workforce because:

  • Selling to the workforce is a way for owners to preserve the integrity and continuity of the business they’ve built up, while acknowledging the contribution of employees
  • A range of tax advantaged schemes, notably the Share Incentive Plan (SIP) or Employee Ownership Trust (EOT) , make structuring employee ownership or an employee buy-out feasible and rewarding for owner and employees
  • Employees do not need to raise their own capital or risk providing personal guarantees 
  • Selling to employees does not need the same level of due diligence and removes the need to find a buyer 

How EOTs can benefit you, your business and your employees

  • You sell at a fair market price
  • Sellers gain more control of the sale process and the deal structure
  • It can be done with or without external financing
  • Sale is possible when other sale options are not achievable or suitable
  • You can maintain influence to ensure that you get paid
  • Company culture and integrity is maintained
  • Lower level due diligence requirement
  • You pay 0% CGT
  • Profit share and tax-free bonuses for management and employees
  • Staff retention and recruitment is easier.
  • High levels of employee engagement.
  • Business stability and productivity improvements.
  • Typically completes in 10-12 weeks
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Key Considerations and Eligibility for Transitioning to an EOT

Whilst a move to employee ownership has many benefits, there are various considerations, and it requires legal and financial preparations similar to selling to a third party. This includes HMRC approval and an independent professional valuation. The process requires thorough planning and is suitable for many, but not all businesses. 
 
To qualify for  an EOT , you must meet the following conditions:
  • The owners must be selling shares in a trading company
  • The company must have sufficient, non-shareholding employees
  • The EOT must acquire at least 51% of the business.
  • The EOT must be established for the benefit of all employees.

 

ESS Corporate Services can guide you through each step of this process, ensuring a smooth and successful transition to employee ownership.

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Employee Ownership Trust Success Stories

Ascento Learning & Development 

A further education private training provider with DfE and ESFA contracts for apprenticeships and bootcamp programmes.

Chris was approached by the owner wishing to exit the business after a series of unsuitable offers. Employee Ownership was identified as the best option, ensuring employee protection, rewarding key personnel with share options, and facilitating a stable handover.

Chris led discussions with solicitors, secured a healthy valuation, and developed an exit framework. The transaction, for zero capital gains tax, was completed within four months, also facilitating the discussion with the ESFA over change of ownership.

Anonymous Education Provider

A provider of funded programmes with contracts from devolved authorities and the DfE    

Chris was consulted following a failed sale due to due diligence issues and an unrealistic earn-out period, and Employee Ownership was deemed the best solution. Chris resolved complexities in the share structure and secured zero capital gains tax approval within six weeks, completing the transaction in four months from initial engagement.

Chris facilitated discussions with the ESFA regarding ownership changes. The shareholders continued to support the new Employee Owned Trust post-transaction.

 

Large UK-Based Auction House

Chris was engaged once the decision to become employee-owned was made. Appointed as a Trustee, Chris negotiated between shareholders and the Employee Owned Trust to establish a suitable financial and legal structure.

His role involved consulting on the share purchase agreement, advising on how to deal with communications to employees and working closely through a period of post-transaction changes. He continues to support the Directors and outgoing shareholders to ensure the long-term success of the Trust.

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