Employee Ownership Trusts (EOT)
What is Employee ownership?
Employee ownership is a business model in which employees have an ownership stake in the company that employs them, often resulting in increased job satisfaction, productivity, and company loyalty.
What is an Employee Ownership Trust (EOT)?
An EOT is a trust established to hold a controlling interest in a company on behalf of its employees. It is a popular form of employee ownership, and the structure offers several advantages. There can be tax benefits, long-term stability for the business, and enhanced employee engagement. The EOT must benefit all employees on equal terms based on certain criteria, such as hours worked, length of service and level of remuneration.
Why set up an EOT?
An EOT can be an effective exit strategy for a business owner in several circumstances, such as were they wish to preserve their company’s legacy and values, where they want to reward and motivate their employees, and/or where the owner has not found a suitable third-party buyer or wishes to avoid selling the business to a competitor. See our FAQ section below for further information.
How our legal experts can help, and why you should choose us
Our solicitors can play a crucial role in setting up and managing an EOT for your business. We are experienced in leading people through the sale process to employees, by drafting the documentation setting up the trust and establishing the trust company, drafting the share purchase agreement, including structuring the deferred consideration documentation, and overall ensuring that the company and EOT comply with the relevant laws and regulations so that the beneficial tax treatment can be taken advantage of.
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FAQ’s Employee ownership trusts
The process involves drafting a trust deed, transferring at least 51% of the company’s shares to the established EOT, setting out its governance structure, and making sure the trustees meet the legal requirement of preventing former owners from retaining control of the EOT.
Yes, the business owner can remain involved in a leadership or advisory role, depending on the agreed terms and needs of the business.
For the selling owner, there is an exemption from capital gains tax on the sale of shares to the EOT, and employees can also receive exemptions from income tax on bonuses up to a certain limit each year, and relief from inheritance tax on certain transfers into and from EOTs.
