Employee Ownership Trust
If you're a business owner starting to think about succession, there’s a lot to consider. You've built something meaningful. Now you want to secure a bright future for it. An Employee Ownership Trust (EOT) enables you to hand over the reins while keeping your business’s values, people, and independence intact.
At Postlethwaite, we specialise in helping companies across the UK become employee-owned. We don’t just advise on EOTs; we live and breathe employee ownership. Being 100% employee-owned ourselves, over 20 years’ experience and over 200 successful EOT transitions, we bring clarity, a commercial and practical approach and technical excellence to every step of the process.
Whether you’re simply considering your succession choices or are already exploring transferring your business to an EOT, we’ll help you on your journey, from the first questions to final signatures and beyond.
What is an Employee Ownership Trust?
Whether you're a business owner considering succession, part of your company’s leadership team planning its future or a professional adviser, the Employee Ownership Trust (EOT) model offers a compelling alternative to a traditional trade sale or management buyout.
An EOT is a structure that allows a company to be owned by its employees helping secure its future for those who know it best – your people.
Set up under legislation introduced in 2014, an EOT acquires a controlling stake in the company on behalf of all employees. Staff do not buy the business individually. This approach avoids the complications of individual shareholdings and ensures broad, long-term employee benefit.
In most cases, where the EOT buys the company, the purchase price is paid by the company funding the EOT over time from its future profits.
Some of the key benefits of an EOT include:
- Long-term continuity and protection of your business’s values and culture
- Significant tax advantages for both sellers and employees
- A stronger sense of shared purpose, proven to improve employee productivity
- Gradual leadership succession
- No need to sell to a third party or private equity firm
How we help you through your EOT journey
Moving to employee ownership is a big step. Our initial priority is to ensure you feel confident about it, through clearly explaining how it works and exploring with you any concerns and questions. By choosing Postlethwaite, you can be confident we will deliver a clear, practical process tailored to your goals:
- Initial review and feasibility – We assess if an EOT is right for your business based on your company’s structure, people, finances, values, and leadership.
- Designing the EOT – We create a structure that suits your company, its people and your goals and that satisfies the EOT tax rules, collaborating with your accountants or other tax advisers if requested.
- Preparing the legal documents – This includes trust deed, share purchase agreements, governance documentation and articles of association.
- Applying for HMRC tax clearance – We handle the process, a key part of ensuring that your sale proceeds will not be taxable.
- Ensuring the company has been professionally valued. This is essential. We believe it is best covered by an independent firm of valuation specialists and can suggest a valuer if required.
- Setting up trustees and governance – We can advise on trustee selection and design a governance model to ensure future stability.
- Supporting internal communication – This is critically important. We help you explain the EOT to employees and the senior leadership team to gain their support.
- Ongoing legal support – We can continue providing support for governance, bonuses, and legal issues after completion.
We truly aim to walk the journey to employee ownership with you. We explain everything in plain English and help you make informed decisions at every stage.
Frequently asked questions about Employee Ownership Trusts
Employee ownership can be direct (employees hold shares themselves), indirect (a trust holds the shares), or a hybrid of both. An EOT is an indirect model and the simplest form of employee ownership.
An EOT protects your company’s culture, rewards employees, and secures your legacy. It also offers tax advantages and avoids the disruption of a trade sale or management buyout by creating a strong foundation for future growth.
Read more about the positive evidence-based findings from the People Powered Growth Report released in 2023.
No. The EOT purchases shares on behalf of employees, funded by the company’s profits. Employees don’t need to invest their own money or take on any personal financial risk.
Sellers will qualify for 0% Capital Gains Tax relief if the EOT structure meets specific criteria.
Once employee-owned, companies can also pay tax-free bonuses of up to £3,600 per employee each year.
Most transitions take around three to four months. Timelines depend on the complexity of your business and how quickly decisions are made. For example, companies which are regulated, such as law firms, may require permission from their regulator, increasing the time needed.
Normally, an EOT will acquire a controlling interest in a company from its current shareholders.
Commonly a price will be agreed (based on an independent valuation) which must not be more than market value and payment will then be made in instalments, the EOT being funded by the company, with an initial payment funded from its current profits and further payments from its future profits.
Occasionally, a company owner will give their shares to the EOT but in most cases they will wish to be paid. Sometimes it is possible to arrange an external loan which will enable a larger part of the purchase price) to be paid in one go.
Read our ‘Where does the money for an EOT come from?’ blog for more detail on this.
An EOT will be run by its trustees. Their role will not be to manage the company (this continues to be the role of the management team) but to ensure the company is being well led and in a way which maximises employee engagement and commitment. This is sometimes facilitated by the creation of an employees’ council.
The company will continue to be run by its directors and senior managers. This is not the job of the EOT trustees, whose role is more to make sure the directors are doing an effective job. Nor is management the role of employees, although it will be important that they are engaged in the business and in how they can work together to help build the business further.
Why choose Postlethwaite for your EOT transition?
We are a specialist law firm focused solely on employee ownership. We are national leaders in our field with over 20 years’ experience and over 200 successfully completed EOT transitions. We offer wide practical know-how, legal and tax expertise, proven communication abilities and attentive project management.
We’re ranked by Chambers & Partners and Legal 500 as a leading firm in employee ownership.
Our own employee ownership structure gives us first-hand knowledge and experience of the challenges specific to employee-owned companies.
Contact your trusted Employee Ownership Trust solicitors today
Please contact our specialist team by calling us on 020 3818 9420 or sending an email to info@postlethwaiteco.com. One of our solicitors will promptly be in touch.