Benefits of an Employee Ownership Trust EOT Guide

A guide to helping businesses understand the benefits of an Employee Ownership Trust for the seller, employees, and the business itself.

 

 

As of Summer 2021, there are 730 employee-owned businesses in the UK, and this number is growing all the time. An Employee Ownership Trust is the most popular model of employee-ownership – this is because of the unique benefits that an EOT brings to the exiting shareholders, the company employees, and the company itself.

EOT benefits for the seller

In the appropriate circumstances, an Employee Ownership Trust is the most tax efficient way to sell your controlling share in a business. The transaction is completely tax free for the seller, with no Capital Gains Tax.

When selling your controlling stake to an EOT, you are guaranteed the full market value for your shares. This market value is based on independent assessment.

Unlike a trade sale, you also gain certainty of exit in a clearly defined time frame, meaning the whims of trade buyers cannot impact or delay the sale.

You can also exit the business with assurances that your employees are being well looked after, and that you will be leaving behind a satisfying legacy.

For exiting shareholders who do not wish to depart fully and immediately, succession can be implemented over a period, so you may retain a level of involvement and ensure the transition period is smooth.

 

 

 

EOT benefits for the employees

One of the biggest benefits for employees of a company owned by an Employee Ownership Trust is that they can receive tax-free annual bonuses of up to £3,600.

Furthermore, employees of an EOT-owned business will be able to have a meaningful say in how the business is run and operated.

Once the previous shareholders have been fully remunerated for their shares, all employees will collectively participate in the economic benefits that would normally be accrued by shareholders.

Employees are therefore directly rewarded for their hard work and contribution in helping the business become more successful.

EOT benefits for the business

As well as benefitting the exiting shareholders and the employees of the business, an Employee Ownership Trust also presents several benefits for the organisation itself.

Studies have shown employee-owned businesses to be highly resilient, more profitable, and more sustainable. The incentives presented to employees improve motivation and performance, while employment standards also tend to be higher.

Because they directly benefit from the success of the business, employees are more committed to long term business goals, with a more entrepreneurial mindset.

We have a separate guide that goes into more detail about the Pros & Cons of an EOT, both from an Employer and Employee perspective.

How do employee-owned companies perform?

The Employee Ownership Association releases annual reports on the 50 biggest employee-owned companies in the UK, including John Lewis, the Arup Group, Richer Sounds and many more.

The top 50 employee-owned companies in the UK generated over £20bn combined sales last year and employ over 150,000 staff. These companies saw an average increase of 4.6% in sales, year-on-year alongside a 25.5% yearly growth in operating profit. They also reported an overall productivity boost of 4.6%

How have our clients benefitted from an EOT sale?

The Shorts team are specialists in helping businesses transition to employee ownership through Employee Ownership Trusts. We recently helped T Allen Engineering Services complete a sale to an EOT, and they noted some clear and tangible benefits following the sale.

Beyond the clear tax benefits, the Managing Director of T Allen cited the legacy aspects of an EOT sale as highly beneficial, along with the reassurance and security he was able to offer his employees after his departure.

A trade sale can drastically change the way a business operates under new ownership – by selling to an EOT, he was able to exit with confidence that his company was not going to be “carved up”.

You can find out more about our work with T Allen Engineering Services in our detailed case study.

How to get started with an EOT sale

The Corporate Finance team at Shorts sit at the cutting edge of EOT planning and delivery and can help you navigate every single stage of this process.

Our services include full project management, tax and HMRC assistance, working closely with your solicitors to prepare all legal documents, assistance with communicating the EOT process to employees, and much more. Speak to our team today to get started, or download our free EOT guide.

Shorts is proud to be a member of the Employee Ownership Association.