Employee Ownership Trusts (EOT) enable all employees to have a stake in the company and a share in the profits. The Government introduced EOTs back in the 2014 Finance Act to encourage more shareholders to transfer shares to a corporate structure (like the John Lewis model), which offered indirect employee share ownership.
According to the Employee Ownership Association, there are now circa 2,250 EOT businesses in the UK. These companies have transferred ownership into the hands of their staff, with increasing numbers of other organisations starting on the EOT route every day.
As there are more than five million registered companies in the UK, the number of businesses that have transitioned to an EOT is still minuscule when compared to the bigger picture. The benefits of succession planning are huge, and this blog post will act as an informative resource for business owners who are considering succession planning options and aim to demonstrate why an employee ownership trust could be the perfect next step for your company.
Tax Advantages of Employee Ownership Trusts
For a company that transitions to an EOT, the benefits for both the vendor and the employees are exponential. For the vendor, all proceeds of the sale value are taken tax-free. While the employees do not pay personally for the shares, they can take up to a £3,600 tax-free dividend, or ‘bonus’, each year.
Additionally, the government is firmly supportive of employee ownership. Therefore, whilst Capital Gains Tax may be increased by the revenue, we can ascertain that for the time being, EOTs will remain zero-tax.
Company Culture Advantages of an Employee Ownership Trust
Alongside tax advantages, another plus to an EOT is preserving company culture. This culture is not affected in the same way as can occur with a trade sale, which can really challenge the status quo. After the transition to an EOT, the employees feel empowered and engaged as they are now owners of the company. An EOT can also help with employee attraction and retention. This is a huge gain in today’s ever-increasing challenging recruitment market. Plus, the PR value is enormous.
Time Advantages of an Employee Ownership Trust
Another benefit is that the time it takes to carry out an employee ownership trust can be less than a third of the time to do a traditional trade sale, allowing for a smoother transition and reducing any potential disruptions to the business operations.
Preparing Your Business for an Employee Ownership Trust
There is rarely a day that goes by without reading about the latest company transition to employee-owned in the press or business news. Companies operating across various industries are jumping on this fantastic exit opportunity. Many business owners have realised that without their team, there would not be a business. Due to this, they feel a desire to repay the staff for creating such value in the company.
Eager to learn more about EOTs and get an overview of their benefits for business owners and employees? Click here or download our free guide for further information.
Alternatively, we would be happy to discuss the employee ownership trust process with you on a confidential basis. For us to answer any questions you may have directly, please get in touch.