Employee Ownership Trusts (EOTs) are gaining popularity in the UK, offering a unique business model that fosters shared success and collective responsibility. Established by the Finance Act 2014, EOTs enable companies to be wholly or partly owned by their employees through a trust, aligning employee interests with the long-term success of the company.
What is an Employee Ownership Trust?
An EOT is a structure where at least 51% of a company’s shares are owned by a trust on behalf of the employees. This model ensures that the workforce has a significant stake in the company’s success. It also provides tax advantages, including capital gains tax relief for business owners selling to an EOT and income tax exemptions on annual bonuses up to £3,600 per employee.
Key Features of EOTs
· It ensures that the employees have significant influence over the business.
· It offers capital gains tax relief and income tax exemptions.
· The company remains managed by its existing board, with trustees overseeing the trust’s operations.
Benefits of EOTs
· It fosters a sense of ownership, boosting motivation and productivity.
· It encourages sustainable growth and long-term thinking.
· It provides a viable option for business owners to preserve their legacy.
· It helps attract and retain talent with the promise of shared ownership benefits.
To establish an EOT, you should follow the below steps:
· Obtain an independent valuation of the company.
· Draft a trust deed outlining the EOT’s purpose and governance.
· Finance the purchase of shares through loans or company reserves.
· Transfer the shares to the EOT and operate under the new structure.
EOTs represent a forward-thinking approach to business ownership in the UK, promoting enhanced employee engagement, long-term stability, and competitive advantage. By adopting an EOT, companies can drive mutual success and contribute to a more inclusive economy.
For more information about our journey with EOTs or to discuss how this model could benefit your business, please get in touch with us.
