Employee Ownership Trusts (EOTs) is a Government led initiative, which provides employees with the opportunity to obtain ownership of the business and gives business owners the opportunity to sell their shares to an employee-owned trust free from capital gains tax.
This does not involve direct share ownership by employees. EOTs give a controlling interest in the company, which is transferred to a trust for the benefit of all employees.
A well-known example of this type of business model is John Lewis & Partners. This successful and well known corporation runs the largest employee–owned business in the UK, with a workforce of 80,000 and trading sales recorded at over £12 billion.
Employee Ownership Trusts have become increasingly popular in recent years due to a range of benefits that the scheme provides for both business owners and employees including:
- Tax free sale by UK individual shareholders
- An exit strategy where there is no obvious third party purchaser
- An efficient and simplistic exit route for shareholders
- Up to 49% of business involvement can be retained by the owner
- Available share capital can be used to incentivise employees
- Improved employee retention
- A more democratic approach by employees towards the running of the business
In many ways, an EOT is a model that promotes and encourages collaboration, sharing and team work.
To allow the purchase of shares from existing owners, funding will be required. The seller will often receive payment for their shares from income generated by the business in the future.
Healys Corporate & Commercial lawyers can prepare the necessary share transfer and trust documentation to ensure that owners benefit from tax regulations, and that the trustees can be assured of their position and obligations.