Employee Ownership Trusts
Many companies have no succession plan to ensure the future of the business. If you are a business owner thinking about an exit strategy and succession planning for your business, we can provide you with specialist legal advice and assist you with putting a plan in place. An increasingly popular option, adopted by high profile companies such as John Lewis, is to become employee owned. At Oliver & Co we have also recently evolved into a 100% employee-owned company ourselves so we are in a great position to advise on what is involved.
What is an employee ownership trust and how does it work?
The business model of an Employee Ownership Trust (EOT) was introduced as a government initiative in 2014, enabling business owners to sell a majority or all of their shares to their employees.
How it works:
- The process of converting to an employee ownership trust involves the creation of an employee trust, managed by trustees, to look after the interests of the employees.
- The outgoing business owners sell their shares to the employee trust at an agreed valuation meaning that the company is then held on trust for the benefit of the employees working in the business at that time and while they continue as employees. The employees are then beneficial (indirect) owners of the business and the outgoing owners no longer have ownership or control of the company.
- The result is that profits from the business are paid into the EOT which enables the trustees to pay the purchase price to the outgoing owners in instalments over a defined period with the employees receiving the balance by way of dividends.
After a company becomes owned by an EOT, the former owners may remain involved as trustees of the EOT and in the management of the company, particularly where some element of the purchase price has been deferred. However, they must be in the minority, allowing control of the business to transfer to the employees.
The trustees’ role is to look after the employees’ interests and to manage the trust with the company’s new-look board of directors answerable to them. New employees will automatically become beneficiaries of the trust, perhaps after satisfactory completion of a probationary period, whilst departing employees will automatically forfeit their interest in the company.
What are the benefits?
For the outgoing business owners:
• They can obtain the full market value for their shares
• Allows for an exit by the outgoing business owners without a sale to a third party, reducing the need to find a buyer or negotiate price and preserving the outgoing business owners’ legacy
• If certain requirements are met then the outgoing business owners will not pay any capital gains tax on the sale of their shares
• The share sale does not attract an inheritance tax liability
• Outgoing owners can still retain some of their shares in the company
For the company and the employees:
• Employees have certainty as to the company’s long term strategic plan
• Employees can receive bonuses up to £3,600 per annum free from income tax
• Employees can have a say in how the company operates, providing employees with a sense of ownership without having to directly purchase shares
• Can have increased employee incentivisation, commitment and productivity
• Can have higher staff retention
• Can have increased profitability
How can we help you on your employee ownership journey?
Oliver & Co is the largest employee-owned law firm in the North-West. Being members of the Employee Ownership Association (EOA) and having a specialist team of solicitors who advise in this area, we are in a strong position to advise others who are considering this move.
Whether you are considering employee ownership as part of an expansion strategy, at start-up stage or for succession planning, we can:
- advise you on the technical legal aspects of the change
- help you put a plan in place and prepare the necessary documents
- consult on the cultural shifts you can expect
Why choose us as your partner for change?
- Having successfully transitioned to becoming 100% employee owned, we understand first hand what it takes to become employee-owned
- We provide a high-quality service that goes the extra mile for our clients
- We offer a free consultation to help identify whether employee ownership should be considered as a succession or growth strategy for your business
- We are ranked as Excellent on Trustpilot with over 1000 reviews
If you would like to find out more about your company being employee owned, then contact us on 01244 312306.
You can also find out more about our own evolution into an EOT here: