Employee Ownership Trust (EOT)

What are the key benefits of transitioning into an EOT?

Have you considered the potential of transitioning to an employee ownership for the future of your business? 

Introduced by the Finance Act 2014, the Employee Ownership Trust (EOT) is a form of indirect employee ownership which aims to provide business owners with more sustainable and tax advantageous ways of running a business, alongside strategic succession planning for themselves, their employees and their business.

Whether this is something you have discussed or a new idea you think could be interesting, in this article we will explain:

• The key benefits for your business
• The key benefits for you
• What should you consider?
• Your next move?

How could an EOT benefit your business?

There are various ways in which a business can benefit and thrive under an EOT, both present and future.

The key benefits to a business include:

1. Increased productivity: granting an interest in the business can act as a great incentive for employees to actively contribute to the overall success of the company, helping to boost overall levels of productivity and engagement.
2. Improved Retention: by granting employees a stake in the future of the business, you can create a long-term relationship between the employees and the company, fostering job security on the basis that the company’s focus will be on the employees’ collective interest.
3. Future forward: employee ownership is a great testament to the company’s commitment to investing in its people and its future.
4. Attract Emerging Talent: employee ownership is an attractive concept – it delivers a clear message regarding the priorities of the business as well as opportunities for career progression and growth, all of which can appeal to talented individuals at the very start of their career.
5. Preserve culture: an EOT is an effective way to preserve and maintain the independence of the business – by removing a third-party buyer from the equation, you can maintain the culture and values you have carefully curated for your business.

How could an EOT benefit you?

Whilst it is important to understand how an EOT can benefit your business, it is equally important to understand how it can benefit you.

You could look to benefit from:

1. Succession planning

By choosing to transfer the shares to an EOT you are planning for your future – you can be actively involved in selecting requirements for appointed trustees and be reassured in the knowledge that your company will remain in the hands of those you trust to preserve its legacy into the future.

2. Tax efficiency

Business owners can sell their shares to an EOT without paying Capital Gains Tax (CGT) on the proceeds provided the transactions meets HMRC’s conditions, upon which we recommend you obtain specialist tax advice. This can save substantial amounts in tax liability compared to other exit routes.

3. Smooth transition

EOTs allow business owners to plan their exit without the stress of a conventional sales process.

4. Continuity

As the exiting owner, you can still choose to remain as a director, advisor, or employee post-completion. This provides continuity during the transition period and allows you to continue contributing to the company’s success whilst planning for your own future.

What should you consider?

There are certain practicalities you need to take into account when considering transitioning into an EOT, the most crucial being:

• How the business is to fund the transition into an EOT.
• Who will be appointed to the board of trustees.
• Whether an EOT would be appropriate ownership structure for your business.

For further information on the role of the trustees in an EOT and the suitability of an EOT for your business please see [x – link to articles 3 and 4).

Your next move?

Setting up an EOT typically takes between three to six months, depending on the complexity of the business and the availability of funding.

Therefore, starting early and involving experienced professionals from the start can help streamline the process.

For further information on Employee Ownership click here. Or to set up a meeting to discuss how an EOT could benefit you and your business, please contact our Company Commercial team. 

What is the role of the Trustees in an EOT? More about Employee Ownership Trusts