Employee Ownership Trusts

An increasingly popular exit strategy with attractive tax benefits and peace of mind over the future of your business.

 

 

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Employee Ownership Trusts

An Employee Ownership Trust (EOT) allows a company to be owned by a trust for the benefit of the employees.

EO is beneficial for the shareholders looking for a tax-efficient exit strategy, and the employees themselves as businesses typically achieve higher productivity and greater levels of innovation and are more resilient to economic turbulence.

Hawsons Corporate Finance is a dedicated team of experienced corporate finance specialists who provide lead advisory, valuation, finance raising, and taxation services to clients establishing ownership structures using an Employee Ownership Trust.

 

Key Benefits

Complete exemption from CGT when sold to an EOT

Treated as an exempt transfer for inheritance tax

Employees can benefit from annual bonuses of up to £3,600 tax free

 

About EOTs

What is an EOT?

An EOT is a form of indirect employee ownership and is usually achieved by the sale of a controlling interest in a trading company to a trust. The trust then holds the controlling interest in the company for the long-term benefit of the employees as a whole.

The EOT becomes the owner of the company and is administered by trustees on behalf of the employees, the trustees could consist of the exiting owners of the company, an independent chairperson, and employee representatives.

How do EOT's work?

An EOT is a form of indirect employee ownership and is usually achieved by the sale of a controlling interest in a trading company to a trust. The trust then holds the controlling interest in the company for the long-term benefit of the employees as a whole.

The EOT becomes the owner of the company and is administered by trustees on behalf of the employees, the trustees could consist of the exiting owners of the company, an independent chairperson, and employee representatives.

Is an EOT right for me?

This is a difficult question because so many different factors come into play but it is fair to say it is not right for every business or situation. That said, in the right situation, an EOT is a fantastic opportunity for an existing shareholder to benefit from a tax-free disposal of shares.

Benefits of an employee ownership

Short term

  • Exempt from Capital Gains Tax on disposal of shares to an EOT;
  • Current owners can still hold up to 49% of the business;
  • Incentivises management and key employees;
  • An attractive alternative to a free market trade for those looking to sell quick and efficiently, and at market value.

Long term

  • Closer alignment of the interests of employees and stakeholders;
  • Improves business performance as employees have more of an incentive to succeed;
  • Improves employee retention;
  • Improves employee engagement and innovation;
  • Tax-free bonuses for employees (up to £3,600 per year for each employee).

Case Studies

PA Jewellery - 12 months into Employee Ownership

In 2018, the Hawsons Corporate Finance team had the pleasure of supporting P.A. Jewellery Limited, a well-known retail business in Sheffield, in their transition to Employee Ownership. The founding family were keen to find a suitable succession strategy, whilst providing a secure future for the company and their employees.

Our process

Valuation

Our experienced corporate finance team can prepare a valuation report for the company, offering reassurance to the both parties being the exiting shareholders and the remaining employees that the business is being transferred over to the trust at a fair market price.

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Sourcing Finance

It is likely that the trust will not have the funds to complete the deal without external finance. We can assist by introducing the exiting shareholders to lenders, and offering support and advice throughout the process. In particular, we can prepare financial forecasts in order to satisfy lender requirements.

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EOT Design and Tax Structuring

We can assist in the deal structure and the design of the EOT alongside the solicitors, ensuring that there is full transparency from the outset with regards to consideration received by the exiting shareholders, and the timing of payments.

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Oversight & Communication

We will offer support and guidance throughout the entire process, and will assist in communicating plans to current employees at the appropriate time(s).

Our EOT experts

Pete Wilmer

Corporate Finance Partner

Jack Parker

Corporate Finance Executive

Craig Walker

Tax Director

Jack Ware

Corporate Finance Director

Stephen Charles

Tax Partner

Contact our experts for a free initial meeting

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