Why employee shareholders should be thinking about EOTs

By DTE Business Advisers

27 Jun 2022

Employee Ownership Trusts (EOT) are becoming an increasingly popular ownership model which can deliver significant benefits to both shareholders and employees.

Employee Ownership businesses are structured with the sale of the business to a Trust. The Trust then operates the business on behalf of the employees.

Since 2014, such sales have been 100% Capital Gains Tax (CGT) free. This is due to the belief that they increase both company productivity and sustainability. As well as closing the gap between shareholders and employees.

According to Avondale, there are now approximately 600 employee-owned businesses in the UK and the number is rapidly growing. DTE Corporate Finance have set out below some of the key benefits and risks of EOT’s. As well as dispelling some myths around their complexity and commercial benefits.

EOT Requirements

Key requirements to qualify to become an Employee Ownership Trust are:

The sale must be a minimum of 51% of the company shares, however many are 100% The business must employ more than 7 staff members to take advantage of the EOT structure A new company should be created. This will act as the employee share ownership trust with the existing shareholders selling their trading business shares to this EOT company A sale and purchase agreement will be executed. After the sale the company will trade as a fully owned subsidiary of EOT The EOT valuation is subject to HMRC clearance and will be assessed using comparisons with other private sale benchmarks. The Government is actively promoting the Employee Ownership business model

Key Benefits

Below are just some of the key benefits, which attract many shareholders to consider EOTs as an exit strategy:

Unlike an open-market sale, the due diligence can be significantly reduced. The deal can also be structured over an agreed period The transition from a traditional company structure to an EOT can be vendor-led. This means that employee buy-in is only required at completion. As opposed to an MBO, which is generally led by the motivated management team Owners can decide to gradually exit the business whilst they pass on greater responsibility to management. This allows the vendor to benefit from maximum commercial value, zero tax and ensuring a smooth handover With loan notes often structured over quite long periods, Employee Ownership can lead to enhanced value in many instances. EOT sales can achieve better shareholder value than trade deals when structured correctly Profits are more often reinvested for growth for the benefit of the business and the employees. Most Employee Ownership businesses pay salaries in the upper quartile for their sector to senior management, along with the potential tax-free incentive bonus of £3,600 per annum to all employees EOT businesses see increased retention of staff and greater productivity Employee Ownership sales provide an optimal solution for vendors. Enabling them to exit on a commercial basis whilst ensuring the continued growth of the business, economic contribution and adding to the well-being of the employees

Risks

As with all new, revolutionary schemes, there may be some risks and complexities involved in determining whether an EOT is the best option for your business.

When considering whether an Employee Ownership Trust is the right option for your business, you should be aware of some possible difficulties:

A motivated trade buyer may offer a greater exit value for the shareholders. As noted above, the EOT valuation, is subject to HMRC clearance and will be assessed using comparisons with other private sale benchmarks. Owners therefore may forego an opportunity to earn high multiples if a competitive market exists Management may not have the requisite skills or appetite to take over and run the business. The development of a future management team will be critical to long-term success Whilst setting up an EOT may be straight forward, any future sale or dissolution of the trust may cause further complexities. The nature of these new trusts can lead to uncertainty as how to exit fully in the future, once set up Shareholders may not be able to fully exit from the business as with a conventional sale. A full succession plan will be required to establish a new board and trustees. It may take time to build employee engagement to the new structure

EOTs can often seem highly technical and complex. This can often make shareholders reluctant to consider what may be an advantageous option, both for them and employees. However, DTE Corporate Finance’s, extensive experience allows them to recommend the most appropriate and beneficial exit strategy tailored specifically to your circumstances. Contact DTE Corporate Finance in Manchester, to discuss your business requirements on 0161 819 1910.

Find out more about DTE here or keep up to date with that they are up to by following them on LinkedIn.

Latest news

1

Construction begins on new Civil Service office building in Talbot Gateway Alan McBride Muse Will Town Defence Infrastructure Organisation Jennifer Chard Defence Business Services Cllr Lynn Williams Blackpool Council Garry Bowker Vinci

Construction begins on new Civil Service office building in Talbot Gateway

20 May 2025

2

Skiddle raises over £750,000 for charities Skiddle cheque presentation to Alder Hey Hospital

Skiddle raises over £750,000 for charities

20 May 2025

3

Former Victorian Hotel approved for residential conversion The site

Former Victorian Hotel approved for residential conversion

19 May 2025

4

REVOLUTION PARK: Work starts on Darwen’s new home of advanced manufacturing Oliver Webber, Tracy Clavell-Bate and Tim Webber from Barnfield Group with Cllr Phil Riley, second from right, Leader of Blackburn with Darwen Council

REVOLUTION PARK: Work starts on Darwen’s new home of advanced manufacturing

19 May 2025

5

Two Cuckoo Gins named winners in The Gin Guide Awards 2025 Mark Long

Two Cuckoo Gins named winners in The Gin Guide Awards 2025

19 May 2025

Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
LBV122 May/June Launch Event
121 Lancashire Business View Magazine Launch
Networking
21 May 2025

LBV122 May/June Launch Event

Lancaster and Morecambe College, Lancaster, LA1 2TY

08:30 - 10:30

Sub36 Networking
Networking
11 Jun 2025

Sub36 Networking

British Jewellery School, Scorton, PR3 1BA

15:00 - 17:00

Lancashire Net Zero Carbon Conference
Net Zero Carbon Social 1200pxtrident 2
Networking
18 Jun 2025

Lancashire Net Zero Carbon Conference

Crow Wood Hotel & Spa Resort, Burnley, BB12 0RT

08:30 - 13:00

Lancashire Built Environment Conference 2025
BEC 315 X 315 Px
Networking
25 Sep 2025

Lancashire Built Environment Conference 2025

Blackpool Football Club, Blackpool, FY1 6HX

08:30 - 13:00

CMI Level 5 Management and Leadership Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Management and Leadership Course

Preston Campus, Preston , PR1 2HE

09:00 - 17:00

CMI Level 5 Project Management Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Project Management Course

Preston Campus, Preston, PR1 2HE

08:00 - 17:00

RISE - The Academy for Female Leaders and Managers
WENDY BOWERS RISE Illustrstion copy.jpg.jpg
LBV Hub Seminars
02 Apr 2025 - 08 Oct 2025

RISE - The Academy for Female Leaders and Managers

East Lancashire Chamber of Commerce, Clayton le Moors, BB5 5JR

09:00 - 15:30

The Business Network Central & East Lancashire
LBV Hub Networking
22 May 2025 - 22 May 2025

The Business Network Central & East Lancashire

Mytton Fold, Langho, BB6 8AB

11:30 - 14:15

Preston Freelancer Meet-Up: May
Freelancer Meet-Up May.png.png
LBV Hub Networking
22 May 2025 - 22 May 2025

Preston Freelancer Meet-Up: May

society1, Coworking Space, Preston, PR1 3LT

10:00 - 11:30

Amber River True Bearing quarterly investment seminar
LBV Hub Seminars
22 May 2025 - 22 May 2025

Amber River True Bearing quarterly investment seminar

Cottons Hotel & Spa , Knutsford, WA16 0SU

16:00 - 18:00

Liverpool Business Expo 2025
https---cdn.evbuc.com-images-881365363-4862066883-1-original.20241023-085714.jpeg.jpg
LBV Hub Awards
23 May 2025 - 23 May 2025

Liverpool Business Expo 2025

Aintree Racecourse , Liverpool , L9 5AS

09:00 - 15:00

Advantage: AI – A Workshop for Business Leaders – May 29
Artboard 15.png.png
LBV Hub Seminars
29 May 2025 - 29 May 2025

Advantage: AI – A Workshop for Business Leaders – May 29

Door4 Office, Burnley Wharf, Manchester Road, Burnley, BB11 1JG

09:00 - 11:00

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV122 Online Graphic
Subscribe now

Weekly news bulletin