Considering moving to employee ownership? How to plan for an EOT

September 19, 2023

By Stephen Thompson

We are seeing increasing numbers of business owners selling their shares to an Employee Ownership Trust (EOT). The tax advantages on offer to selling shareholders remain attractive, and EOTs can be a particularly useful model for business owners who want to exit their business but ensure that the ethos of the business is maintained.

We have previously explored the wider benefits of EOTs in this article.

If you are planning to move to an EOT model, it’s really important that you plan the transition to ensure that it works both for the selling shareholders and the business as a whole.  Here are our tips for planning the transition:

1. Take early advice. An EOT is only one type of employee-ownership, and there are other ownership models to consider.  Whilst an EOT is probably the most tax-advantaged option, it might not necessarily be the right option for you or your business.  We recommend that you take advice on the available options, and which fits best with the intention behind the transition as well as your particular business.
2. Get an independent valuation of the shares/business. Whatever exit strategy the business owners decide on, having a clear understanding of the value of the business is a vital step.  In moving to an EOT model, the valuation may help sellers assess how much of the shareholding they want to sell, and will also feed in to how the sale price will be structured.  For example, the business will need to know how much borrowing will be required.
3. Bring your employees along with you. Moving to any employee ownership model will represent a big shift for both the sellers and the employees within the business.  An EOT will need to have a number of trustees, typically including several employees.  Some employees can find the thought of being a trustee intimidating, particularly if they have historically had very little involvement with decision-making in the business.  Consider involving employees in decision-making in advance of any move to employee-ownership in order to smooth that transition.
4. Succession planning. One of the key advantages is that selling shareholders can continue to be involved with the business post-sale. This can ensure not only a smoother transition for employees, but also enables experienced sellers to continue to share the benefit of their experience with the business.  However, it is important that the company still has a succession plan in place, as the selling shareholders will typically plan to exit completely within a few years of selling to the EOT.

If you require assistance with any of the above, please contact a member of our corporate team, Stephen Thompson via email on sthompson@darwingray.com or via telephone on 029 2082 9136 for a free initial chat to see how we can help you.