Why an employee ownership trust may be a good option for entrepreneurs exiting a business: Stephen Newman
Since their introduction in 2014, almost 1,500 EOTs have been established in the UK, a figure which grew by 37 per cent between 2022 and 2023.
With large numbers of reputable companies from Go Ape to Aardman Animations turning to EOTs, the key questions now are will this upward trajectory continue; and what impact will the recent change of government have on the trends to date?
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Hide AdIt is worth clarifying what an EOT actually is. To put it simply, business owners can sell their shares to a trust, and the appointed trustees then hold those shares for the benefit of the employees (both current and future) of the business. Whilst employees do not directly own the business, they have a strong financial interest in its success.


For shareholders looking to sell more than 50 per cent of their shares in a business, an EOT may be the perfect solution. Shares can be sold at full market value, the exit can often be quicker and the disposal of the shares is tax free. The sale also allows for smoother succession planning as exiting owners have more time to identify the new management team that will take the business forward.
It is likely that a seller will retain a seat on the board of directors and the business will be able to utilise the seller’s expertise to help it continue to grow.
The benefits are not all reserved for the sellers either. Statistics show that employee-owned businesses often create greater employee engagement which is a driving force for increased productivity and the overall performance and lifespan of the business. Where employees have a stake in the business, job satisfaction and talent retention often increase and the ownership structure helps to create an attractive workplace for future staff members.
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Hide AdAnd the icing on the cake? Employees can receive up to £3,600 in tax free bonuses annually, provided the eligibility criteria are met.
So, is there a catch? Like any exit strategy, caution should be taken to ensure that the proposals can meet the immediate and long-term needs of the business.
The majority of EOT purchases are funded by the business itself. In many of these sales, the purchase price is paid over a period of time in order to protect the financial health of the business. For owners looking for money upfront, a more conventional sale to a third party may be preferable.
Furthermore, whilst a seller has a guaranteed buyer through the EOT route, it is impossible to know whether an offer above market value might have been made by a third-party purchaser.
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Hide AdArguably, the most crucial aspect is ensuring that the EOT is compliant with the legal requirements that will secure the tax benefits on offer. Expert advice from the relevant professionals is vital to ensure that the transition to an EOT is feasible and achieves the seller’s objectives.
So, are there likely to be changes to EOTs as they stand? While a new government obviously brings a period of uncertainty and there have been multiple conversations around tax and what the future holds for business owners, any plans for employee-owned businesses were not specifically mentioned in Labour’s manifesto.
What’s more, the benefits of employee ownership have been positively accepted by all political parties for many years now and so it would be surprising if any dramatic changes were seen to the regime in the near future.
As such, we expect the number of businesses making the switch to continue to rise and we urge business owners to look at this option when considering an exit.
Stephen Newman is a Partner at Ramsdens Solicitors
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