In this video, Jo Haigh, Founder and Chairman of fds, gives an insight into the benefits of conducting an employee ownership trust (EOT) for both the owner and the existing team. Jo also shares what you should consider, as well as the process of implementing the EOT.
What is an Employee Ownership Trust?
An employee ownership trust describes a method of transferring the ownership of your business into your employees’ hands. There are multiple ways of transferring a business, and succession planning is often on the mind of an entrepreneur from the moment they start the business. And, of course, one of those options is for the employees and management to take over the business. Traditionally, that might have been facilitated by what we would call a management buyout (MBO), sometimes called a vendor-initiated management buyout (VIMBO). Whilst there’s nothing wrong with those structures, there are certain reasons an EOT may be considered more effective.
Benefit of Employee Ownership Trust: No Capital Gains Tax or ‘Hurt Money’
While there are lots of ownership schemes for management, these don’t necessarily transfer ownership directly to the staff. In contrast, an EOT allows you to transfer the ownership of the business to the employees, and for you as a vendor, this is carried out in an extremely cost-effective way. As an owner, once you transfer your business into the EOT, you can take out all the proceeds of that sale tax-free. No capital gains tax at all. This isn’t the case with a management buyout or with a vendor-initiated management buyout.
With a management buyout or a VIMBO, staff would traditionally be expected to put into the transaction what we might call ‘hurt money’- this is often somewhere between one to two years’ salary. The benefit of an EOT is that you can transfer the money into this scheme without costing the employees anything at all.
Benefit of Employee Ownership Trust: Increased Productivity
Transferring a business to the staff leads to a much higher likelihood of increased employee engagement. The Employee Ownership Association highlights that productivity, in 2025, increases between 8% -12% for employee-owned businesses. Thereby, the business is much more resilient and sustainable due to the sense of ownership.
Employee Ownership Trust Process: Overview
You will need to have a team of experts around you to put an employee-ownership trust in place. The process begins with a high-quality valuation, which must be acceptable to both the EOT and the vendor. The complexities of the tax process also require expert advice to ensure that it is compliant with HMRC regulations. It must be robust enough to stand any investigation at a later stage. You will need to have an agreement in place between the EOT itself and the company that is making the sale to ensure that the terms of the agreement are acceptable.
Employee Ownership Trust Process: Funding
The funding process can be done by a vendor loan, where the vendor waits and realises the value of the asset over a period of time, so profits are transferred from the company that has been sold into the EOT and the vendor can take the money out tax-free. Alternatively, the employee ownership trust can borrow against the shares of the business.
Employee Ownership Trust Process: Managing Employees
It’s really important that your staff fully understand what the process means to them. Your staff are becoming owners in the business, which can be overwhelming to those unfamiliar with the process. For sensitivity purposes, a total communication plan needs careful handling.
Employee Ownership Trust Process: How to Choose an EOT Consultant
fds can provide you with a one-stop shop on the whole process. This begins with valuing your business and ensuring tax regulations are adhered to. Through our lawyer connections, we can ensure that all aspects of the legal process and the terms of reference are agreed, including the vendor or loan note.
fds can assist in finding you funding and provide a communications plan that ensures your staff are fully engaged. This is essential for the success of the EOT. Interested in learning more about the EOT service fds provides? Get in touch with a member of the team to discuss this further.