Passing your company into safe hands

12 May 2016

Have you enjoyed building up your business but now feel it is time for you to spend more time on different projects?

This is your business and your investment, so of course you want to be able to realise your capital. There are buyers out there, but it can be hard to find someone to grow and develop the business whilst preserving jobs and core values.

What if you could pass the business to people you know, develop some guidelines for running the business going forward and be paid a fair price, whilst receiving 100 per cent tax relief on any gain?

The way to do that is to pass control of the company to an employee ownership trust (EOT).

Why consider an EOT?

In the current era there are few opportunities to get full tax relief, but this is available with an EOT because governments want to encourage employee ownership. Employee ownership is believed to:

  • act as a catalyst for greater employee commitment;
  • reduce absenteeism and staff turnover;
  • produce faster sales growth;
  • lead to higher productivity and profitability; and
  • create greater resilience through economic cycles.

It is a different way of working, and thinking that has proved very successful in many large and small companies. John Lewis and Arup are a couple of the better known examples.

Further details

Under an EOT arrangement, generally the current shareholders will sell over 50 per cent of the shares in the company to EOT trustees. Share values need to be agreed, but this may be the market value. Like many sales, there is often an earn-out period. Funding often comes from the company, but other funding arrangements are possible.

The EOT is a trust where shares in a company are held by trusted persons (trustees) to benefit employees (beneficiaries). The trustees are bound by the trust documentation and trust law to act in the best interests of the beneficiaries. An EOT must comply with specific statutory requirements and the beneficiaries must be treated equally.

A management committee, often with employee representatives, will usually be established.

The original owners may stay connected with the company, or might set out their wishes or values in a document to guide the management and employees for the future. 

Where to start finding out more

The transition to employee ownership can take some time to plan and implement for best effect. Many companies have already taken some steps to involve employees by introducing enterprise management incentive (EMI) schemes or growth shares, offering shares to selected employees and directors. Others will have awarded employee shareholder status (ESS) shares or set up share incentive plans (SIP). Often an EOT can be run alongside these existing arrangements.

For further information, please contact Fiona Bell or visit the Employee Ownership Association website.