Client Story

HCR corporate team help law firm become employee-owned trust

22nd November 2021

Tim Ward and the Cheltenham Corporate team helped to secure an employee owned trust (EOT) deal that has been hailed as a “major legal first for the West Midlands”.

Talbots Law, which has offices across Birmingham and Wolverhampton, have taken the decision to become an EOT and give their employees real control over where their firm goes next.

Employee-owned trusts are often more flexible, innovative and profitable, thanks to being owned by their employees. Other notable examples of EOTs are the John Lewis Partnership, Aardman Animation and Richer Sounds.

Another benefit of EOTs is that they allow employees freedom in a way they wouldn’t have had before, providing employees with greater involvement in the business they work for. While this new structure will be a big difference, it should be a positive one for staff, with the majority of shares now held in a trust for their long-term benefit.

Mary Morgan, former majority shareholder, explained her thinking: “Employee owned businesses perform better, are more innovative and more profitable and have the security of being owned in a trust, so are not subject to being sold or taken over. It was the only decision I could make when looking to sell a significant number of my shares and, most importantly, is excellent for long-term planning and vision.”

Talbots Law currently employ 274 staff, making them one of the largest law firms to be employee-owned and Mary wanted to protect its “independent, innovative and passionate” people culture.

Several key documents were drafted including:

  • A trust deed, establishing and governing the powers of the EOT
  • Articles of association, setting out rules by which each company is governed
  • Share purchase agreements, dealing with the way in which shares are transferred and for what price.

These documents meant the desired structure could be implemented. The EOT route is increasingly popular because all proceeds on the sale of the shares into an EOT are currently tax-free. If a shareholder sells their shares in any other way, they are due to pay Capital Gains Tax on the proceeds. Sale to an EOT completely removes the tax from the sale.

Furthermore, employees are able to receive the first £3,600 per annum of profit share completely free of income tax. Another key attraction is that the company can continue to operate exactly the same way it did before the sale, with the same board and management structure in place.

Tim and Olivia are looking forward to working on similar projects in the future; Tim said: “EOTs are an increasingly popular way of creating succession in a business; because of the real ownership employees have, their commitment to the business’ success is that much greater. EOTs need to be structured carefully for each business, so that they really reflect its value and are tailored specifically to its needs.”

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