Share and share alike.

Employee Ownership Trusts (“EOT”) – although a relatively recent concept in legal terms, employee ownership has been a cornerstone of many British businesses for a long time. 

The government introduced the formal framework for the EOT in 2014, and it is gaining popularity as an alternative exit route for business owners. 

Sometimes described (somewhat anachronistically, in fact) as “the John Lewis model”, a sale to an EOT means that all employees become beneficiaries of a trust, i.e. quasi owners of the company in question. 

The business is still run by a board of directors, but the intention is to motivate and engage employees on the basis that they will ultimately benefit from the success of the business. 

There are various conditions for a sale to an EOT, and if those are satisfied, this can be an efficient exit route – both in terms of timing (a transaction should take around 3 months), and tax – there is 0% tax payable by sellers on the proceeds of a sale to an EOT!

We can help you explore whether an EOT is a viable exit strategy, including each stage of the process, and how such a transaction would be presented to the employees themselves.

Castle Corporate Finance - Power to the people. Employee Ownership Trusts (“EOT”)

Explore

We will review with you the business, and your personal aspirations, to establish whether an Employee Ownership Trust is an appropriate exit route for all concerned. There’s more to this than just 0% tax, so it needs to be the right fit! We’ll explain the process in detail, the technical and legal requirements, and steps to be followed; and coordinate an experienced detail team (including specialist tax advisers and lawyers, as necessary) to help pull it all together.

Valuation

The first step is to obtain an independent valuation of the company, to establish how much the selling shareholders will receive for their shares. This is a key commercial step, as well as a legal requirement for the EOT, as it must align with shareholders’ value expectations. It also gives the trustees reassurance that fair value is being received for the sale of the business.

Structure

We will help structure all the main terms of the transaction, including the percentage of shares being sold (must be >50%), the make-up of the board of trustees, ongoing shareholder roles (if any), and the payment plan for the consideration. This will all go towards the HMRC clearances that must be obtained prior to completing the transaction.

Fundraise

If required, we will run a fundraising process to procure a greater level of funds to be available to pay to the sellers on completion, usually from a debt source – indeed, there are many specialist lenders who are keen to back EOT transactions (see more here). Without fundraising, sellers can expect to receive only the amount of funds that constitute ‘surplus cash’ in the business at completion; the rest being paid over time out of the company’s profits.

Manage

We will manage all parties, including the tax advisers who will submit the clearance applications to HMRC, and the lawyers who will draft all the legal documentation. We can also help present the EOT to your employees, emphasising the benefits to them, and maximising employee motivation and engagement as a result.

Complete

Unlike many other transactions, once HMRC clearance is received, completion can take place almost immediately and you can decide exactly how and when you would like it to take place. We’ll be with you right the way through.

Putting you in the picture

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