What does an Employee Ownership Trust (EOT) Trustee do? Duties and Responsibilities explained

When a company becomes employee owned through an Employee Ownership Trust (EOT), a board of trustees must be appointed to act on behalf of the trust and its beneficiaries (the company’s employees).

Business owners and prospective trustees often ask what the role of an EOT trustee actually involves. In this first instalment of our three-part ‘trustee blog series’ we explain the key responsibilities and duties of Employee Ownership Trust Trustees, including the decisions they are responsible for, how the trustee board operates and what trustees are – and are not – expected to do.

Whether you’re considering becoming a trustee or your business is exploring employee ownership, understanding the role and responsibilities of EOT trustees is an important part of ensuring the long-term success of an employee owned company.

What is the role of an EOT trustee?

Every EOT has a board of trustees who make decisions together on behalf of the trust.

The EOT trustees are together responsible for overseeing the trust that holds shares in the company on behalf of its employees. Trustees act as stewards of the employee ownership structure, helping to ensure that the business is run in a way that supports its long-term success and benefits the employee beneficiaries.

Their role includes overseeing the directors, reviewing business performance and approving certain key decisions that could affect the future of the employee-owned company.

How do EOT trustees oversee the board of directors?

It is important to be clear that the trustee board operates separately from the company’s board of directors.

Directors are responsible for running the business and making day-to-day operational decisions, while trustees focus on oversight, governance and protecting the interests of the employee beneficiaries.

As the EOT is the majority shareholder, the trustees act on behalf of the trust in exercising shareholder oversight. This includes monitoring the performance of the company’s directors and reviewing significant business decisions.

Trustees also have important shareholder powers, including the ability to appoint or remove directors if necessary. These powers help ensure the directors continue to act in the best long-term interests of the employee-owned business.

How do EOT trustees monitor the company’s performance?

Trustees are responsible for monitoring the overall financial and operational performance of the company.

This typically includes reviewing information such as:

• management accounts
• annual accounts
• financial forecasts or budgets

Trustees may also consider non-financial performance indicators, such as employee engagement, staff retention and the overall health of the employee ownership culture within the business.

What decisions do EOT trustees make?

• Approving the EOT transaction

The first trustees of an EOT are responsible for agreeing to the terms of the EOT transaction. This is the transaction by which the EOT acquires shares in the company.

A key part of this responsibility is ensuring that the purchase price the EOT is paying for the company does not exceed a reasonable market value. This is why an independent valuation of the company is obtained as part of the transaction process, which the trustee’s can rely on when deciding whether to approve the transaction or not.

Trustees should also be given the opportunity to take their own advice on the transaction if they would like it.

• Approving (or not) any matters which require trustee consent

Most employee-owned businesses have a list of matters that require trustee approval before the company’s directors can proceed. Examples include:

• opening a new premises
• purchasing, selling or borrowing against significant assets
• implementing a redundancy programme
• large capital expenditure decisions
• major changes to business’ strategy or services
• strategic hiring decisions

Where a decision falls within this list, the directors must first present it to the board of trustees for them to consider.

How do EOT trustees make decisions?

Trustees will not take decisions alone; they will make them together as a team. The decisions must be in the best interests of the beneficiaries of the trust.

In most cases, the trustee board will aim to reach a consensus decision. However if agreement can’t be reached, the decision of the majority of the trustees will prevail.

Having the right mix of individuals on the trustee board is therefore important to ensure balanced decision-making and effective governance.

Our next blog in this series will explore how to structure an effective trustee board and achieve the right balance of trustees.

How often do EOT trustees meet?

Trustees usually meet at regular set intervals to carry out their duties.

In most EOTs, quarterly trustee meetings are set although meetings may take place more or less frequently depending on the business’ needs. Additional ad hoc meetings may also be required between the set meetings if a matter which requires their approval arises.

Before the set meetings, the trustees should be provided with information from the company’s directors, such as management accounts or board reports. The trustees should have time to consider this information in advance of the meeting so that meetings can be used effectively to discuss and raise any issues.

What legal duties do EOT trustees have?

As mentioned above, all trustees have a legal duty to act, and ensure all the decisions they make, are in the best interests of the employee beneficiaries.

In addition to this core duty, trustees must also ensure they:

• act honestly and in good faith
• do not do anything fraudulent
• avoid acting with improper motives
• exercise reasonable care when making decisions.

These duties form part of the broader legal responsibilities of trustees under trust law.

What protection do EOT trustees have?

Usually, trustees act as directors of a specially formed trustee company.

This structure gives them limited liability protection, meaning they are generally protected from personal liability if a decision turns out later to be incorrect, provided they have acted in accordance with their duties.

The trust deed and associated governance documents created to establish the EOT may also contain additional protections for the trustees.

How Postlethwaite can help EOT trustees

Becoming a trustee of an Employee Ownership Trust can be a rewarding opportunity, but it also comes with important legal duties and responsibilities.

At Postlethwaite Solicitors, we have extensive experience advising EOT trustees and employee-owned businesses, having helped more than 210 companies transition to employee ownership.

We regularly support trustees by providing:

• practical advice on EOT trustee duties and governance
• training for trustee boards
• guidance on decision-making and trustee responsibilities

In some cases, our solicitors also act as independent trustees, particularly during the first year after an employee ownership transition, meaning we bring both legal expertise and first-hand experience of the trustee role.

If you have been offered the opportunity to become an EOT trustee or would like advice on the role and responsibilities in general, get in touch with our team for a chat.

Author: Hannah Tinsley
Hannah is a solicitor at Postlethwaite Solicitors and a trustee of the firm’s own Employee Ownership Trust. She advises businesses on employee ownership and EOT governance.