Employee Ownership Trusts
Employee Ownership Trusts (commonly known as EOTs) have become a popular strategy for business owners selling their shares and looking to partially or entirely exit the business. They are particularly valuable for business exits where there is no obvious trade sale or management buy-out solution.
Our team of corporate solicitors are well versed in successfully advising on the risks involved, developing strategies and advising clients on Employee Ownership Trusts. We have advised on EOTs from all perspectives, including selling to an EOT, buying from an EOT, and disputes arising out of poorly-drafted EOT documentation – so can take a truly holistic view of matters. A poorly structured or ill-considered Employee Ownership Trust can be disastrous for all parties, so it is important to take advice from those experienced in the field.
It is also important to highlight that not all business owners can sell to an Employee Ownership Trust and for those who are eligible, despite the hugely attractive tax benefit of paying 0% capital gains tax on the share sale, there are strings attached. Business owners are permitted to remain involved in the company, although they must relinquish control over the business when selling to the EOT. The EOT must receive and retain the "controlling interest" in the business and without the selling business owners selling a majority stake to the EOT, the employees do not benefit as intended and the tax benefit is not triggered.
What are the benefits of an Employee Ownership Trust?
The benefits of an EOT for eligible employees include the social benefit of ownership of the company, which has proven to increase employee engagement and motivation to promote the success of the company. Additionally, eligible employees could benefit from an annual tax-free cash bonus of up to £3,600.
How Can We Help You?
Sills & Betteridge can assist with advice on the transaction as a whole, including:
- Funding the transaction and potential pitfalls.
- Retained shareholding, including advice on necessary Shareholders Agreements and amendments to company articles of association.
- Management incentives – often alongside a sale to an EOT, an EMI scheme or other management share scheme is instituted for directors or other senior management.
- Appointment of independent trustees or trustee directors of the EOT.
- Security for selling shareholder(s).
If you are thinking of selling your business to an Employee Ownership Trust or would like to discuss your situation further, then please contact Corporate Partner, Euan McLaughlin on EMcLaughlin@sillslegal.co.uk or 01522 700490 to discuss your options.
