Employee Ownership Trust Solicitors

An Employee Ownership Trust (EOT) structure can provide a tax-efficient exit for its owners, whilst providing a long-term incentive to the employees of a company as a whole, helping with its growth and continuity, and encouraging employee motivation and rewards.

Our corporate law team has supported owners of companies in healthcare, engineering and telecoms to sell their shares to an EOT, all of which have been successful in both financial terms and employee engagement.

Why sell to an EOT?

An owner’s disposal of all or part of a company into an employee ownership trust, provided they sell the majority control, potentially allows them tax-free disposal of their shares.

For example, selling 55% of the business to an EOT means the owner will keep an interest in the company but not have to pay tax in selling their shares subject to compliance with the relevant legislation.

There are, of course, further benefits for all parties beyond the tax benefits, which are detailed below. The process of sale to an EOT can be complex and requires meticulous preparation to ensure all aspects are completed correctly.

We strongly advise seeking legal, tax, and financial advice before deciding if this is the best route to take. Call us on 0161 969 3131 or fill in the contact form opposite, and we’ll be in touch to find out more about how we can work together.

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Benefits of an EOT for the exiting individual(s)

Potential tax-free exit
Ability to still be involved in the company
Simplified succession planning

Benefits of an EOT for the company

The new ownership structure can transform how the business operated, bringing employee interests to the heart of decision-making.
Employee-owned businesses achieve higher productivity, are more resilient to economic downturns and have more engaged workforces.

Benefits of an EOT for the employees

The whole point of creating an EOT is to benefit the employees:

They benefit from company profits, without having to fund the purchase of shares personally.
Improved job security, rather than concerns over their future under a new owner.
Companies controlled by EOTs can pay tax-free cash bonuses to their employees of up to £3,600 per employee per year (but not NIC-free).
If the company is later sold, the eligible employees will share in the EOT’s after-tax net proceeds realised on the sale. We recommend advice is sought before the EOT sells shares to ensure that the tax implications and eligible employee class are correctly identified.

Frequently Asked Questions

What is an employee ownership trust?

An Employee Ownership Trust (EOT) is a legal arrangement through which shareholders sell their shares to a trustee company for them to be permanently held for the benefit of the employees. EOT’s were introduced by the Government to incentivise more shareholders to transition to the employee-ownership model.

This way, when shareholders are looking to exit or take a step back, the employees can continue to benefit.

The trust becomes a shareholder, so while it doesn’t manage the company, it has a say in shareholder-level decisions with employees’ best interests in mind.

What is the process of selling to an EOT?

The complete process of selling to an employee ownership trust has many elements. Some key stages will require approval before continuing down the EOT route, such as:

Tax advisors must carry out an initial review to assess if EOT conditions can be met
An independent share valuation of the company must be obtained
Vendors must decide on how much they plan to sell and the method or timings of payment
Terms must be agreed upon with new & existing lenders
HMRC clearance must be obtained for the deal structure
Appoint legal advisors for the EOT
Drafting of legal documentation to complete the sale

There are additional criteria of the process that must also be met for the deal to go through on the agreed terms. Your legal and financial advisers will be able to work through each of the stages with you.