An Employee Ownership Trust (EOT) may well be the most rewarding way to exit your business. We can take you through our smooth process and hold your hand all the way. You would be selling your business to your employees, who won’t have to raise funds, and there are significant tax advantage for you and them.
What is an EOT?
- What is an EOT?
- In 2014, following the Nuttall review, new legislation enabled owners of a company to sell their shares to an EOT without any Capital Gains Tax liability.
- An EOT is a specific type of employee trust where the shares in a company are held on trust, on behalf of the employees of that company.
- The EOT is controlled by Trustees appointed by an EOT trust deed and are typically the selling shareholders together with an Independent Trustee.
- A controlling interest, i.e. at least 51%, of the shares must be sold to the EOT in order to qualify for the CGT exemption.
- Employees of a company controlled by an EOT are eligible for tax free bonuses every year.
- Consideration is paid from the future cash generated by the company, although there is usually an initial lump sum payment.
Post-sale the atmosphere is likely to be highly collaborative as staff are fully engaged, often driving further growth – that is often not the case with a more traditional buyer.
If this sounds like an attractive proposition call us now to hear more about the process and how we can make it work for you and your employees.
Is An Employee Ownership Trust Right For Me?
In most cases the answer will be yes but there are certain criteria that have to be met. Once we have ascertained that you meet those criteria we will sit with you to design your perfect EOT. Every EOT is unique and personal to us. You have entrusted your future, the future of your staff and of your company to us and we take that responsibility very seriously.
Some advisors treat an EOT as a formulaic box-ticking exercise which can leave owners and staff dissatisfied with the outcome. We take an entirely holistic approach. What works for you and how can we achieve it? Will your management team cope and how will they be incentivised? What are the benefits to the whole staff? Only when those and many other issues are settled do we involve our finance and legal partners. Working for you as a triumvirate rather than as individual entities will deliver you a successful and fulfilling EOT.
When we set up an EOT for you the shares in the company are held in a trust on behalf of the employees. The owner would typically receive an initial payment, with the remainder of the consideration coming from future profits.
What are the benefits of an EOT?
There are myriad benefits, from financial to legacy. For owners there is an exemption from capital gains tax and for employees the possibility of income tax free bonuses.
There will be no third-party involvement. The employees are your buyer and they don’t have to take the risk of raising capital. Very little due diligence is necessary.
EOTs are excellent for your reputation. Businesses remain in the control of the ‘community’ of your employees and are a great way to give something back to those who have worked hard for you to build your business.
Post-sale the atmosphere is likely to be highly collaborative as staff are fully engaged, often driving further growth – that is often not the case with a more traditional buyer.
If this sounds like an attractive proposition call us now to hear more about the process and how we can make it work for you and your employees.
