The Benefits of Employee Ownership Trusts (EOT) for Business Owners

The Benefits of Employee Ownership Trusts (EOT) for Business Owners

When it comes to business ownership models, there are many different options available, each with their own advantages and disadvantages. For those business owners beginning to plan their exit, or even those looking for an employee-focused structure at the start of the business cycle, an Employee Ownership Trust (EOT) could be the answer.

What are Employee Ownership Trusts (EOTs)?

An EOT is a type of employee benefit trust introduced by the UK government in 2014 to encourage more employee ownership of businesses. Think of the John Lewis model, and you're along the right lines. The aim of an EOT is to facilitate wider employee ownership through an indirect trust structure that ensures effective company leadership while maximising employee engagement and commitment. By empowering employees to hold a stake in the company, the business alongside any outgoing shareholders can experience a host of benefits.

What are the benefits of EOTs for my business and outgoing shareholders?

For business owners planning their exit strategy, an EOT offers an attractive alternative to seeking third-party buyers. As well as the considerable tax advantage offered, an EOT is considered a "friendlier purchase" as it enables employees to indirectly buy the company from its shareholders without using their own funds. This immediate purchase at full market value allows the business owner to gain maximum value from their business and address any potential succession issues.

EOTs also offer flexibility for businesses with multiple shareholders. Not all existing shareholders are required to sell their shares, and those planning a longer exit strategy can remain involved with the management of the business or as trustees while continuing to receive market-competitive remuneration packages.

Benefits of EOTs for Employees and the Business

As employees gain an indirect stake in the company, they’re likely to feel more invested in the success of the business. As such this can lead to greater levels of engagement day-to-day which can help to drive innovation and business performance. Additionally, companies controlled by EOTs can pay tax-free cash bonuses to their employees of up to £3,600 per employee per year. For some this could go a long way towards incentivising them to stay with the business, boosting retention.

Although an EOT must abide by a set of rules to remain qualifying, with careful forward planning both Enterprise Management Incentive options (EMIs) and growth share incentive schemes can still be offered to key employees to recognise their strategic importance to the business.

EOTs present an enticing option for business owners considering their ownership model or exit strategy. However, when considering the implementation of an EOT, it is important to seek professional advice and expertise. At Haines Watts we understand the complexities involved in establishing and managing an Employee Ownership Trust.

Our team of experienced advisors can help guide both business owners and employees through this process, ensuring a smooth transition that allows you to reap the benefits of employee ownership. Whether you are exploring the idea of employee ownership, or ready to embark on this transformative journey, trust Haines Watts to provide comprehensive support and strategic solutions tailored to your unique needs.

Our guide below outlines some of the key details about EOTs and how they can benefit your business, however, if you would like a more personal conversation, feel free to reach out to us.