Selling your business to employee ownership trusts

The rise in employee ownership as an exit strategy is one of the growing trends of the past five years.

As of January 2021, a rate of 1 in 20 of all exits was to an employee ownership trust (EOT), and there are indications the pandemic has done little to stall the speed of growth in the sector. 

One of the main reasons owners decide to sell to an EOT is to protect the culture of the business and ensure that their hard-won legacy is safeguarded into the future.  

Employee ownership represents continuity for employees and business as usual for customers and suppliers.  

Conversely, it is not always straightforward to find a trade buyer which is the right cultural fit, and many owners feel that this is a compelling reason to look more closely at employee ownership.  

The UK government supports the view that employee-owned businesses are more resilient and better at engaging and retaining staff than other ownership structures.   

This has led to the creation of a favourable tax landscape whereby business owners benefit from a zero per cent capital gains tax rate on a sale to an EOT.  

This tax break, together with the scaling back of entrepreneur’s relief, has incentivised more and more owners of SMEs to consider employee ownership for their succession plan. 

Employee ownership may not be the right exit route for all owners or all businesses.  The transformative nature of a sale to the right strategic trade buyer or the value-add that private equity can provide may outweigh all other considerations.  

However, employee-ownership is now, rightly, seen as part of the mix of exit options on the table.

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