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Getting EOT-ready: a practical checklist for business owners
June 16, 2025
EOTs promote employee ownership by giving business owners the opportunity to sell their shares to an employee-owned trust. The trust will own a controlling stake in a company which is held for the benefit of the company’s employees.
However, a lot of groundwork is required in order for a company to transition into employee ownership. EOTs require careful legal and financial planning to ensure the transition is effective and sustainable.
If you’re considering taking your business in this direction, our corporate law expert, Stephen Thompson, has developed a practical checklist that all businesses should read before transitioning:
There are multiple routes to employee ownership. While the EOT model has attracted attention due to its favourable tax treatment, it may not always be the most appropriate structure depending on the size, sector and governance needs of your business. Early engagement with specialist legal and tax advisers allows you to explore the full range of succession options available and select the one most aligned with your business’ long-term objectives.
A reliable and professional valuation of the business is critical. It informs both the structuring of the sale and any borrowing arrangements that may be required. Also, the relevant tax rules require that the trustees of an EOT have taken all reasonable steps to secure that the price paid for the relevant shares does not exceed their market value at the time of the sale. This ensures a fair transaction for the employees who are the beneficiaries of the EOT.
Employee ownership represents a significant change in company structure and culture. It is important to prepare staff (particularly senior employees/management team) for this shift well in advance of any formal transaction. This includes providing information on the proposed new structure, explaining how the setup will work in practice and offering support and training to those who may take on trustee roles. An inclusive and transparent approach can significantly improve the success of the transition.
A notable benefit of transitioning to an EOT model is that outgoing shareholders or founders often remain engaged in the business for a period following the sale, often via a directorship or consultancy role. Their continued involvement can help maintain stability and offer valuable guidance during the handover to employee ownership. However, it remains essential for the business to put in place a clear succession strategy at management level, as those shareholders are likely to step away entirely within a few years of the transfer and it is crucial for the business to be ready to handle their eventual departure.
If you are considering a move to employee ownership and would like assistance with planning the legal aspects of the transition, please contact a member of our corporate team. Stephen Thompson can be reached via email at sthompson@darwingray.com or by telephone on 029 2082 9100 for a free initial consultation.
To speak to one of our experts today, please contact us on 02920 829 100 or by using our Contact Us form for a free initial chat to see how we can help.
