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Legal and Tax planning for Employee Ownership

Updated: Apr 19, 2023

Legal and Tax planning creates a blueprint for you and your advisors to work from.


Our specialist legal partners have a wealth of experience with previous successful transitions to employee ownership. Legal due diligence for transition to employee ownership does not have an adversarial approach and is less intensive when compared with outside investment. Our legal partners will conduct a legal review to identify any potential impediments or structural issues which may delay a transaction.


Legal and Tax planning creates a blueprint for you and your advisors to work from

Legal and Tax planning for shareholders ensures that the business structure and transaction is tax compliant qualifying for full Capital Gains relief and is pre-approved with HMRC.


For employees, this could involve placing shares within employee share schemes and minimising income tax liability. Ownership needs to feel real among employees with rewards clearly linked to performance.


Providing the EOT holds more than 50% of the shares in the company the vendors qualify for full CGT relief. Employees can receive a profit share from the company and pay no income tax on the first £3600 each per year.


Complementing the Employee Ownership Trust, direct share schemes can be implemented such as Share Incentive Plans and Enterprise Management Incentives. This can be a useful tool for linking objectives with incentives and for attracting new talent into the company.


Immediately following completion of the transaction, the company shares have very little value because of the debt owed to the original owners. This represents an opportunity for employees as a small percentage of shares can be purchased for very little but accrue in value throughout the payback period.


As a team of advisors, we work with you to establish new legal and governance structures. The Employee Ownership Trust needs to be defined, established and appointed. Approval of existing shareholders will be formally required, and changes to your Articles of Association will need to be approved. Governance structures, such as a remuneration committee to decide upon senior pay need to be constituted.


The Sale and Purchase Agreement (SPA) needs to be agreed. The SPA is the legally binding contract outlining the agreed conditions between the trust and vendors. The SPA sets out the agreed elements of the transaction, includes a number of important protections to all the parties involved and provides the legal framework to complete the sale.


Essentially, the sale and purchase agreement spells out all the details of the transaction so that both parties share the same understanding. We facilitate agreement of the SPA and effective completion with all parties concerned.


Call us on 01384 274 778 / 075 888 925 88 to discuss or go ahead and book a free consultation to explore your options.


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