The selling of a business is a turbulent time, often fraught with perils and declining profits. For business owners who want to ensure continuity as they transition ownership, setting up an Employee Ownership Trust has become a popular choice. An EOT typically allows employees to have a much greater sense of a stake in the business as well as offering numerous other advantages.
There comes a time in almost all businesses when the business owner wants to move on, whether that be into retirement or on to their next venture is irrelevant for us, the important thing is that this has typically meant that the business is going to be sold. When businesses get sold it can be a very turbulent time, both for individual employees who might fear the loss of their job, and for the business itself, as it undergoes a transition from one set of hands to another. Happily, this need no longer occur at all, an employee ownership trust or EOT can instead be set up, allowing the business owner to move on and allowing the employees of a business themselves to own it.
The broad strokes of the idea are that by removing the turbulent period of changing ownership and putting the future of the business into the hands of those who helped make it what it is, the business will continue to operate at relatively the same pace as it did under the previous owners. This article will go deeper into what exactly an Employee Ownership Trust is and what benefits it provides.
What is an Employee Ownership Trust?
Simply put, an EOT is a legal and financial route for the employees of a company or business to own a majority stake in the place they work. Obviously having each individual employee literally own a part of the business could get very messy and complicated, so a trust is established that functions as and on behalf of the employees in this situation. While not having direct shares and ownership, employees still benefit collectively from any financial rewards that the business might gain and from the ownership of the company by the trust.
Tax benefits
By far the most standout feature of an EOT for most business owners is that there is a Capital Gains Tax (CGT) relief if they sell a majority stake. This relief means that they would pay no tax whatsoever from any proceeds of the business being sold. This provides a very clear and obvious benefit over other methods of selling off a business, which would be taxed, reducing the overall gain from the sale.
For employees of a company that is owned by an EOT, the benefit is less drastic but still worthy of note. An EOT-owned company is allowed to distribute bonuses of £6,600 to each employee, free of tax. Obviously, employees who are the beneficiaries of such a bonus would be thrilled to be working under an EOT-owned business.
Continuity and preservation of the legacy of the business
If a business owner wants to sell but still wants to ensure that the business they created continues on pretty much as before, selling to an EOT is probably one of the better options. Selling a company to an EOT will not result in any restructuring or relocations for a business, and is unlikely to see any such changes result unless the vast majority of workers want such a thing. With leadership and existing company structures preserved, the normal day-to-day of a business is likely to be relatively unaffected by a sale to an Employee Ownership Trust.
Making employees feel important
Another very impactful aspect of an EOT is the way it makes employees feel. Knowing that they will directly benefit from the success of the business, employees are more likely to be interested in the business’s success. This means that EOT-owned companies are likely to see fewer sick days, a better work ethic and employees willing to go above and beyond to ensure that they, and their business, succeed.
Increased recruitment and retention
By creating a sense of shared collective ownership among employees, businesses are able to greatly increase their recruiting power, and just as importantly, are less likely to see employees leave over frivolous matters. By showing that the workforce is a valued and important part of the company, one that is financially incentivised and offered stability, businesses owned by an EOT are able to set themselves apart from the regular run of businesses in the hiring market.
Conclusion
With so many benefits offered by Employee Ownership Trusts when compared to other methods of selling, it seems likely that more businesses will head in this route. With reasonable tax incentives and the protection of their legacy for owners, why would they choose any other method? For employees, the benefits are even better. With the chance of tax-free bonuses, a stable and secure workplace, a real stake and financial incentive to perform well and a sense of pride in the collective ownership of a business, who wouldn’t prefer to work for an EOT-owned company? If more companies embrace this model, the future of employee ownership in the UK looks very bright.
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