Employee Ownership Trust (EOT)

An Employee Ownership Trust (“EOT”) allows you to sell your business to your employees without them having to personally invest any money into the business, making them indirect owners of the company.

An EOT can appeal to business owners as it can provide brilliant employee benefits, including job security and a greater sense of purpose within the business, as employees have a stake in the company's future. This can, in turn, improve employee engagement and also act as a great recruitment tool. The Trust Company can also distribute profits to employees, taking advantage of the £3,600 tax-free bonus allocation per annum.

An employee-ownership transition can also have great benefits for a company, including improved performance; studies suggest employee-owned businesses tend to be more profitable and sustainable due to a more engaged workforce. Increased employee satisfaction and a sense of ownership can also lead to lower employee turnover, reducing recruitment and training costs. Significantly, an EOT can provide a way for a business owner to exit the company while ensuring its continued success under employee ownership.

Whilst there is an element of risk with an EOT for a business owner (deferred payments are likely), at present, it is the only way you can take the sale of your business proceeds tax-free (no capital gains tax or income tax is applicable for qualifying companies).

In 2020, fds transitioned into an employee ownership, meaning we have first-hand experience with the transition from being owner-managed and can give honest and reliable feedback and advice. Since then, we have helped many companies transition to employee-owned, across multiple industries. Throughout this process, we will support and manage the entire process, starting with a robust valuation of the business (an essential as this is a requirement from HMRC), to liaising with the tax and legal partners as relevant and then providing the internal communication plan which is essential to share the exciting news with the team as the company embarks on this new chapter.