What is an employee-owned trust?
An employee-owned trust, or ‘EOT’, provides indirect ownership of a company via the employees. The EOT acquires a majority stake and holds it for the benefit of the company’s employees in the long-term.
What are the benefits of an EOT?
Advantages include:
• Greater employee engagement
• Tax advantages for both seller and employees – including no capital gains tax on the sale of shares and employees receiving tax free bonuses of up to £3,600 per person each year.
• An easier sale – an employee-owned trust will be a more stable buyer than a third party
• A ready-made exit – if the owner is unwilling to sell to a competitor or family, the business will be in the hands of the people who know it best – the employees
Will I receive a better return?
Potentially – as sale proceeds are free from capital gains tax, your overall return could be higher than through a more conventional sale. This may also be the case if you were to sell the shares to the trust at a lower price.
How are acquisitions of a controlling percentage funded?
These are mainly funded via the on-going profits of the acquired company. This means the company must continue to trade profitably after the sale. The consideration will be paid to the seller as profits are produced.
Is there a way I can retain a shareholding?
As long as the EOT acquires over half of the shares, as a seller you can retain a shareholding. This could be useful if you are not ready to leave the business altogether but who wish to hand over control to the employees.
Can I combine ownership with other incentives?
This type of ownership can be combined with share incentive packages, either through direct share ownership or tax-efficient share option schemes.
Do I need to meet any conditions?
Yes – these include:
• The EOT acquiring a controlling interest
• All eligible employees benefiting from the trust on the same terms
• The number of employees holding more than 5% of the shares not exceeding 40% of the total number of employees.
