Employee Ownership Trusts (EOTs)

An exit strategy that rewards your team & protects your business’ future.

What is an Employee Ownership Trust?

An Employee Ownership Trust (EOT) is a legal structure that allows business owners to essentially sell their company to itself, held by a Trust that pays out in the interest of the employees whilst holding a controlling share of the company. In effect, this leaves your team with the final say over the direction the company takes, protecting the company culture and identity you created whilst rewarding them for their work and dedication. Best of all – it provides a purpose-built exit plan for you.

EOTs have been proven to consistently improve employee engagement and efficiency. Setting up an EOT allows every member of your team to benefit directly from the company’s success: this Trust, managed by appointed Trustees from your leadership team, will allow the gradual purchase of the business, providing a steady stream of sale income to yourself, as well as paying out to the employees.

Leave your legacy in safe hands: find out why an EOT could be the right succession plan for your business exit.

BHW Solicitors – EOT Experts

BHW Solicitors’ corporate team are top-ranked local solicitors in both the Legal 500 and Chambers and Partners guides. This team is headed up by Ed Nurse, Managing Partner & Director, who has achieved Legal 500’s highest individual ranking of ‘Leading Individual’.

With years of experience in business law and a deep understanding of the intricacies of EOT transactions, our team is equipped to handle the unique challenges that arise during the sale of a business to an Employee Ownership Trust. We have even undergone our own EOT conversion, so we know what the process is like on both sides of the curtain.

Our experienced and hands-on team can advise and help in all areas of an EOT transition, from initial investigations through to final negotiations. We can make this exciting process both smooth and mutually beneficial for you and your team.

A Personalised Approach

We understand that every business is unique, and we believe in taking a personalised approach to every client engagement. Your BHW legal team will take the time to listen to your goals, understand your concerns, and develop a strategy that aligns with your vision for the future, both for you and your business.

A Collaborative Partnership

We believe in building strong, collaborative partnerships with our clients and their chosen professional advisors. Our team will work closely with you and your accountant, tax advisor, or funder, providing clear and timely communication throughout the entire process.

Commitment to Excellence

At BHW, excellence is at the heart of everything we do. We are committed to delivering top-quality legal services that exceed your expectations. Our team stays up to date with the latest developments in EOT legislation and market trends, allowing us to provide you with accurate and relevant advice.

Business Succession Planning – Your Options

Employee Ownership Trusts are just one of several solid exit strategies you can take when looking to sell or step away from your business. From MBOs to restructuring and demergers, our Business Succession team offers comprehensive legal advice in all areas of business succession and exit strategies.

Discover your business exit options, receive advice on employee support, or learn what to do in a case of insolvency – you can find the answers you need by exploring our Business Succession Hub.

Success Stories

Discover how our solicitors helped company owners like you in selling their business: read more about our successful EOT transitions here.

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Contact BHW Today To Start Your EOT Journey

If you are a business owner considering the sale of your business to an EOT, BHW is here to assist you. Contact us today to learn more about how we can support you in achieving your goals. Our team are ready to provide you with the expert legal guidance you need for a successful EOT transaction.

Employee Ownership Trust FAQs

How do EOT conversions work?

The first step is to set up the trust. This is settled for the benefit of the company’s employees with there being a single “corporate trustee” to manage the affairs of the trust. The trustee will take the form of a newly incorporated company. To begin with, the corporate trustee will usually (but not always) mirror the company in terms of its directors. The company’s shareholders will then sell their shares (or at least some of their shares) to the EOT and the EOT will then manage the shares for the benefit of the company’s employees.

How do Employee Ownership Trusts incentivise staff?

Over time, the directors of the corporate trustee can be changed to include employee representatives. Trustees are able to distribute a tax free bonus of up to £3,600 per employee. A primary advantage of an EOT can be the increased level of employee engagement. By making employees stakeholders in the company’s success, an EOT fosters a sense of pride and responsibility which can translate into increased productivity and a more positive work culture.

How long do EOT conversions take?

Completing an EOT conversion usually takes around 3 months. An EOT project can be front-heavy; agreeing the structure, financial valuations, clearances and undertaking a company health check. Regarding the payout to the seller, the majority of the consideration payable for the sellers’ shares is usually paid over time and financed through profit generated by the target company. The length of time therefore varies depending on the profitability of the company and the value of the shares sold, but approximately 8 years is common.

Are there any tax benefits to an EOT?

There are certain tax advantages associated with EOTs. The sale of the sellers’ shares to an EOT may be exempt from Capital Gains Tax (subject to the qualifying conditions being met – please read this article for details on these) and qualifying employees can be paid up to £3,600 in bonuses each year free from income tax.

Is selling a business to an EOT easier than a traditional sale?

One of the major benefits of EOTs from a seller perspective is that there is a ready-made buyer. Rather than needing to identify a third party and go through rigorous negotiations and due diligence, as would be the case in a standard third-party sale, the company would effectively be purchasing itself from the sellers.

Should I seek professional EOT advice?

It’s vital that you seek professional advice if you are thinking about selling to an EOT. Legal, accounting and tax advisers will need to be involved in the sale process from an early stage in order to ensure that the legal and financial intricacies of setting up and managing an EOT are successfully navigated. The conversion process is often seen as a tax-driven process, when in fact there are a number of legal considerations which need to be discussed. For example, due diligence and a review of the underlying business (which impacts value) and director decision making processes.

What happens to those employees who do not want to be part of the trust?

It is possible for an employee to opt-out, but in practice this is unlikely, as they stand to benefit and are not put at any disadvantage. Professional EOT advice can assist you in having these discussions with any employees who are concerned or uninterested.

Do employees receive shares in an EOT?

No. The shares of the company are to be held for the EOT for the benefit of all eligible employees, and not by any one employee individually.

What happens to employees that leave the company: will they no longer be beneficiaries?

It is possible for an employee who has left the company to continue to benefit, depending on the terms of the trust deed, but not more than 12 months after their exit.

How we can help

What is an Employee Ownership Trust?