As a business owner, planning your exit can be one of the most significant decisions you make. Selling your shares to an Employee Ownership Trust (EOT) offers a compelling alternative to traditional sale methods especially following the recent Budget which was introduced by the Labour government.
What is an Employee Ownership Trust?
An Employee Ownership Trust is a structure which allows employees to collectively own a business. It involves setting up a trust that holds shares on behalf of employees, providing them with a stake in the company’s success. This model has gained popularity in recent years as a way to ensure business continuity and promote a positive workplace culture.
In addition to receiving more favourable treatment from a tax perspective, selling your shares to an EOT also has other benefits. For example, employees who have a stake in the company are often more motivated, productive, and committed to its success. Selling to an EOT can also ensure that the company remains intact and continues to operate under its existing values and culture.
The Process of Selling Shares to an EOT
Selling to an EOT can be a complex process and, to ensure that you are able to benefit from its advantages, it is important implement the change of ownership correctly. Before deciding to sell your shares to an EOT, you should consider the following:
- Engagement Strategy: Develop a plan for how you will engage your employees in the ownership process. This could include training programmes and regular communication about the company’s performance.
- Assess Eligibility: Determine if your business is suitable for an EOT. Generally, the company should have a robust financial history and a commitment to employee engagement.
- Engage Professional Advisors: Consult with financial advisors, legal experts, and EOT specialists. They can help structure the deal, ensuring compliance with regulations and financial feasibility.
- Valuation of the Business: Conduct an external valuation of your business to establish a fair price for the shares. This may involve a thorough financial audit and market assessments.
- Establish the EOT: Set up the trust, which involves drafting legal documents that define the trust’s purpose and the terms of employee ownership.
- Funding the Purchase: The EOT typically borrows funds to buy the shares. This may involve utilising retained or future company profits or, less likely, secured financing from a bank.
- Communicate with Employees: Keep your employees informed of developments throughout the process. Transparency can foster trust and enthusiasm for the transition.
- Complete the Sale: Finalise the sale by transferring shares to the EOT. Ensure all legal requirements are met and that the trust is registered properly.
Speak to a Firm with First-Hand Experience
Selling your shares to an Employee Ownership Trust (EOT) can be a deeply rewarding way to facilitate a total or partial exit from your business. It not only ensures continuity but also fosters a sense of community and shared purpose among employees, empowering them to take an active role in the company’s future. Having undergone this transformative process ourselves two years ago, we understand both the challenges and the incredible benefits it brings.
Our own journey to becoming an employee-owned business has given us firsthand insight into the legal, practical, and emotional aspects of this transition. We know what you’ll go through and are here to help you navigate each step with confidence. With the right guidance, you can achieve a smooth transition that benefits you, your workforce, and the long-term success of your business.
To fully realise these benefits, it’s essential to navigate the legal aspects correctly. Engaging specialist legal professionals can streamline the process, ensuring all documentation is prepared accurately and that the transition is legally sound.
If you’re considering this option, contact us to arrange a free consultation. As a law firm that has experienced this journey ourselves, we are uniquely positioned to guide you toward a successful transition—one you won’t regret!
Call us on 01244 312306 or complete our contact form and we’ll be in touch as soon as possible.
