Employee Ownership Trusts

Is your business considering setting up an Employee Ownership Trust (EOT) as a means of restructuring your company? Ramsdens Solicitors can advise you on all aspects of corporate law surrounding EOTs, and help you establish an EOT structure that works for your organisation.

The UK has seen a growing trend in businesses moving towards a shared ownership model, in order to increase employee participation. EOTs, introduced by the Finance Act 2014, are a mechanism for collective ownership of a business by its employees.

Within the EOT, shares in the business are held by the trustee for the benefit of the employees as a whole (creating employee ownership), but the business remains managed by its board of directors usually without interference on the part of the trustee in day-to-day matters.

An EOT therefore gives employees a financial interest in their future and increases their opportunities to engage with the business. At Ramsdens, we can advise you on how this process works, and help you deliver maximum value for all stakeholders.

To find out more about how we can support you in planning or setting up an employee ownership trust, call the corporate law solicitors at Ramsdens on 01484 821 500, or fill out our online enquiry form to request a call back at a time that is convenient for you.

Advantages and Employee benefits of Employee Ownership Trusts

Employee share ownership can result in greater productivity and profitability and can assist in the recruitment and retention of employees.

There are generous tax reliefs associated with an EOT and for business owners. Selling to an EOT means that a completely tax-free exit from the business may be possible, while employees will not only acquire a financial stake in their employer;, but will also receive bonuses of up to £3,600 per annum tax-free.

The main attractions of the EOT structure are as follows:

• It can be shaped to fit the objectives of the shareholders of the business

• EOTs are a ‘friendlier purchaser’, meaning the sellers can benefit from a quicker and less stressful sales process

• The tax advantages make the EOT an attractive option both for the sellers and for the employees

Should you set up an Employee Ownership Trust?

If you are considering whether an EOT is right for your business, you should ask yourself the following questions:

• Who will be the trustee? There are risks and the potential for a conflict of interest, which must be managed.

• How will the EOT be governed? The sellers cannot retain control of the business.

• What is the market value of the shares that the trustee must acquire in order to have a controlling interest in the business? You may need specialist valuation advice.
• How will the trustee raise the funds to acquire the shares? Usually the funds will come from the business itself, but third-party funding is possible.

How can we help?

Our corporate team has advised a number of owner-managers on the sale of their shares to an EOT, ranging in value from the hundreds of thousands to the tens of millions of pounds. Ramsdens' corporate team can help you identify the most tax-effective and appropriate means to achieve an exit from your business, utilising an EOT mechanism to attract, retain and motivate your employees.

By gaining a full understanding of what you want to achieve, and how that fits with your plans for the future of the business, we will look at all the available options and help you decide which one is right for you. As a full-service law firm, we can help with any ancillary legal matters.