Is an Employee Ownership Trust Right for Your Business?

Get answers to your top EOT questions

If you’re a business owner starting to think about succession or exit planning, you may be wondering whether an Employee Ownership Trust (EOT) is the right route for you. While management buyouts and third-party sales have long been the traditional paths, EOTs are rapidly gaining popularity – and for good reason.

At BHW Solicitors, our expert EOT advisors work with company owners across the UK to structure transitions to employee ownership that secure the future and culture of their businesses whilst protecting employee interests.

So, what exactly is an EOT, and how do you know if it’s right for your business?

What is an Employee Ownership Trust?

An Employee Ownership Trust allows company owners to sell a controlling interest in their business to a trust that is set up for the benefit of their employees. Introduced in 2014 to encourage wider employee ownership, EOTs have grown increasingly popular as businesses have started to witness their short and longer-term benefits.

Whether used as an exit strategy or simply to increase employee loyalty and longevity, selling to an EOT has a range of benefits, including:

•  Capital gains tax relief on 100% of the sale proceeds (if certain tax-related conditions are met).

•  Continued legacy and independence of the business.

•   Enhanced employee engagement, effort and retention.

•  Flexible deal structure and payment terms.

Why are more business owners choosing EOTs? 

A growing number of company owners are rejecting the idea of selling to third parties, such as competitors or private equity, in favour of a more “values-aligned” approach. Whilst selling to a third-party may lead to a fast pay-out, it leaves your company vulnerable to closure, downsizing, or a complete change in brand and culture. In contrast, an EOT preserves your legacy and hard work by leaving the company in the hands of your team, as well as rewarding their dedication and long-term investment. Instead of losing control to an external buyer, you can reward the very people who helped build your business – your employees.

Is your business suitable for an EOT? 

EOTs work particularly well for profitable, stable businesses with a loyal workforce and strong leadership team in place.

However, an EOT won’t be the right fit for every company, so it’s important to take expert legal, financial and tax advice early in the decision-making process. Key questions to consider include:

• Does your business have a stable profit history and is this foreseeable for the short-medium term?

• Are your company’s operations asset-light? 

• Are there suitable systems in place for leadership succession?

• Do you want to protect the culture and independence of your business?

• Would you be willing to offer buy-in for all employees? 

If you answered “yes” to most of these, an EOT could be worth serious consideration.

Legal considerations when setting up an EOT

While the concept of an EOT is relatively straightforward, the legal process can be complex. You’ll need to:

• Draft and establish a qualifying trust structure 

• Ensure the company sells a controlling interest (more than 50%) to the EOT 

• If seeking a capital gains tax exemption, satisfy the relevant EOT tax conditions.

• Put governance structures in place that protect the interests of employees and the trust 

• Navigate employment law, tax, and corporate law implications 

At BHW Solicitors, we specialise in guiding business owners through these legal requirements from start to finish – including liaising with tax advisors and accountants to deliver a seamless transaction. Speak with an expert EOT advisor for support in drafting your trust structure. 

Why choose BHW Solicitors? 

At BHW Solicitors, our EOT team is made up of corporate law specialists who not only understand the technical side of employee-owned business structures, but the practical realities of exiting a business. That’s because BHW Solicitors is an EOT itself – we practise what we preach, because we really do believe it is a fantastic option for the right company and its team!

Our EOT advisors will provide: 

• Comprehensive legal support from structure design to completion 

• Clear, jargon-free advice tailored to your business.

• Coordination with accountants, tax advisors, valuers, and trustees.

We’ve acted for a wide range of businesses, from engineering firms and agencies to consultancies and manufacturers. Whether you’re in early discussions or already set on an EOT, we can help you every step of the way.

Next steps: exploring an EOT 

Whether an EOT is right for your business depends on your goals, your team, and your long-term vision.

However, one thing is clear: if you’re looking for an exit strategy that rewards your employees and preserves the integrity and culture of your business, then an Employee Ownership Trust could be the perfect fit.

For a no-obligation discussion about your options, speak to our EOT specialists today.ns, speak to our EOT specialists today. 

Categorised in: Blog, Corporate and Commercial, EOT, Guides, News, Succession Hub

Tags: Business Sale, Company Law, Employee Ownership, EOT