An Employee Ownership Trust (EOT) can allow a business owner to realise capital value by selling at least 51%, while ensuring its continued success under employee ownership.
An Employee Ownership Trust allows you to sell your business to your employees without them having to personally invest any money into the business. This makes them indirect owners of the company. This model provides indirect ownership, meaning the trust owns the shares rather than individual employees. One key advantage of an Employee Ownership Trust is the significant tax reliefs available for both the vendor and the employees. Due to this, the model is very financially attractive.
Employee Ownership Trusts are designed to provide stable, long-term ownership, ensuring the company remains employee-owned over time. All employees benefit from the trust, promoting collective ownership and engagement, similar to the ‘John Lewis Partnership’ model.
An employee-ownership transition can also greatly benefit a company. This includes 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.
Since the Government introduced EOTs in 2014, employee ownership has grown by 90%, with over 2,250 employee-owned businesses across the UK to date (EOA – 2025). Well-known companies like Richer Sounds, Arup Group, Mott MacDonald and Aardman have successfully transitioned to employee-owned. This demonstrates the practical benefits of this ownership model. Overall, EOTs can be a valuable tool for companies looking to ensure long-term stability and foster a strong sense of employee involvement.
Whilst there is an element of risk with an Employee Ownership Trust 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).
What Are the Key Benefits of Employee Ownership Trusts?
Transitioning a business to employee ownership can bring many advantages that enhance the company culture and overall performance. Here are some key benefits:
- The Vendors can take the proceeds of the sale tax-free. Zero tax is payable on the consideration as long as the tranche transfer is not extended beyond one tax year.
- EOTs can be implemented much quicker than other exit routes. On average, the employee ownership trust projects that we manage take appropriately three to four months to complete. This is subject to HMRC’s approval.
- The company’s DNA, culture, values, and integrity are maintained, as there is no change of guard.
- Employees can be rewarded with tax-free bonuses of up to £3,600 per annum.
- The staff who have helped you build your business become, in effect, owners for no cost to themselves.
- It can attract great talent and retain the talent you have.
- It provides job security for the existing team as there is no change in ownership.
What is the Process of an Employee Ownership Trust?
Implementing an Employee Ownership Trust involves several key steps to ensure a smooth transition. Whilst each individual business’s requirements may differ, here is a general outline of the process:
- Assess Suitability: Determine if an EOT is the right fit for your business. We will evaluate factors including company size, financial health, company culture, the team, and leadership readiness.
- Conduct a Company Valuation: We will perform a thorough and fair valuation of the company. We will take into consideration industry analysis, real-time deals in your sector and select the most appropriate valuation methods. Our valuation reports are extremely thorough, and we have a 100% success rate with HMRC (no valuation reports have been challenged).
- Explore Modelling Options: We will work with you to explore various feasibility modelling options regarding the proposed payment plan and structure, per the agreed valuation following the valuation report.
- Establish the Trust Structure: Working with selected legal and tax partners, we will set up the legal framework of the EOT. This includes drafting the trust deed, selecting trustees, and defining the governance structure.
- Transfer Control: The current owners sell at least 51% of their shares to the EOT, benefiting from tax advantages such as exemption from capital gains tax. While the trust holds the shares, the day-to-day operations are typically managed by the existing leadership team, with strategic decisions involving the trustees.
- Internal and External Communications: We understand the importance of communication and the benefits of creating an effective communication plan. This is why we will work with you to create an internal plan to share this great news with the team. In addition, we highly recommend that external communication be undertaken, especially with local and industry business news outlets.
- Employee Benefits: Employees become beneficiaries of the trust. This means they will receive benefits such as annual bonuses or profit shares, which are distributed tax-efficiently.
How Can fds Help
In 2020, fds transitioned into employee ownership. This means we have first-hand experience transitioning from owner-managed to employee-owned and can give honest and reliable feedback and advice. Since then, we have helped many companies transition to employee ownership across multiple industries.
Throughout the transition to employee ownership, we will support and manage the entire process. We will start with a robust valuation of the business (an essential as this is a requirement from HMRC), liaise with the tax and legal partners as relevant and then provide the internal communication plan. This plan is essential to share the exciting news with the team as the company embarks on this new chapter.
Considering selling your business via an Employee Ownership Trust and want to learn more about how we can support you? Contact us to discuss your options confidentially.
