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What is an Employee Ownership Trust?

Updated: Apr 19, 2023

The Employee Ownership Trust was set up under the Finance Act 2014 to encourage companies to transition to employee ownership and is incentivised with tax relief for both the vendors and employees.

Employee Ownership Trust

An Employee Ownership Trust or ‘EOT’ is established, and the existing shareholders sell their shares to the EOT at a fair market value. The EOT acquires the shares using a combination of bank finance and/or vendor loan notes. In some instances, the entire consideration is funded by vendor loan notes.

This means that vendors can:

· Benefit from some consideration now

· Receive interest on future loan note repayments maximising value.

The EOT must own more than 50% of the company’s shares and can acquire between 50 and 100% of the shares. Once established all employees must receive benefits from the EOT on the same terms.

Typically, an EOT will acquire a controlling interest or 100% of the shares from the owners. The price will usually be agreed based on an independent valuation. The price cannot exceed the market value of the business.

The company continues to be run by the management team. The Trustees ensure the company is being well managed maximising employee engagement.

What are the key benefits?

Employee ownership is pandemic resilient, tax efficient and ethical offering key benefits for both employees and owners:

· Full Capital Gains Tax relief

· Highly competitive valuations

· Immediate purchaser with no competitor involvement

· Lower advisor fees with no succession issues

· No onerous earn-outs with fewer warranties and indemnities

· Tax -free employee bonuses up to £3600 per annum

· Greater employee engagement, innovation and improved business performance

· Management and staff can benefit from employee share schemes

Check out our EOT explainer video...

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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