Are you thinking of selling your business?
Want access to a tax efficient mechanism for sale?
Want to fully walk away or still benefit from future growth?
Want to incentive employees and complete the journey with them?
If any of the above resonates, then this is for you:
What is an Employee Ownership Trust?
An Employee Ownership Trust (EOT) is a form of employee benefits that were introduced by the Government in 2014 in an attempt to encourage shareholders to restructure their business to align with the John Lewis model.
The EOT model allows the founder or business owner to transfer ownership of the company to its employees. This means that the trust now owns the company, which allows the staff to get a say in how the business is run, and any profits made are distributed amongst the staff.
The incentive for owners is that the Government introduced very generous tax breaks to encourage shareholders to move to an employee-ownership model. However, in order to qualify for the tax incentives, the EOT needs to be structured in a particular way.
How the process works
So you’ve decided that an EOT is the right route for your business… but how does it work?
Here’s a look at the key steps you’ll need to take:
Establish an EOT with an appointed set of trustees
Speed & Simplicity
Setting up and selling through an EOT allows the owner to leave whenever they choose and is not held up looking for investors or buyers.
Outgoing owners will get the company’s full market value as defined by an independent valuer. The only stipulation is that it gets paid incrementally over time. Payments from the EOT to old owners, though, are tax-free.
By selling to an EOT the outgoing owner retains some control by knowing that their business is in good hands with the employees who may have worked there for a long period of time. They will know the business inside out and be able to continue it successfully. This means that the legacy of the owner and the company is somewhat protected.
Cost & Flexibility
The cost of EOT succession is often greatly reduced as no extensive negotiations are needed. Flexibility comes in when the outgoing owners have the choice to retain up to 49% of the company shares if they wish to still be involved in the business.
What are the advantages to the company and the employees?
Succession via EOT is not only beneficial to the outgoing owner but can also be very beneficial to both the company and the employees.
One of the most stressful parts of being an employee in a company that for sale is worrying about new management coming in and restructuring the business, putting their jobs at risk. Through at EOT sale, this is a thing of the past as employees can be assured of stability and control following the sale.
As shareholders in the company, employees have a greater interest in the firm’s success, pushing them to be more engaged and have higher productivity.
Higher Staff Satisfaction
Employees enjoy having a say in how the business is run and its future plans. They also enjoy the annual bonuses that come from the company profit payouts, especially when they’re tax-free up to £3,600.
Employee Owned Trusts are increasingly on the rise as a business model and it’s easy to see why, but they’re not always plain sailing, and it’s always recommended that both parties have advisors to help them through the transition.
This is where Auria can help. We offer complete business advice and support when you’re looking to make this transition and sell your business via an EOT route.
Why not reach out to one of the Auria team or visit our website to find out how we can make your life that little bit easier.