Employee Ownership Trusts (EOT)

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ZEDRA provides collaborative, experienced and independent trustee services to a diverse range of EOT owned businesses.

An Employee Ownership Trust (“EOT”) is a form of employee benefit trust introduced in the Finance Act 2014 as part of a UK Government initiative to encourage business owners of trading businesses to set up a corporate structure to facilitate wider employee-ownership, and in turn incentivise employees.

An EOT allows employees to indirectly buy the company from its existing founders/shareholders without employees having to use their own funds – this can lead to an immediate and preferred purchaser (e.g., the EOT) being available for exiting founders/shareholders but also serves to address succession issues.

It is an excellent option as an exit strategy for business owners/shareholders who wish to preserve the legacy of their company and is typically a preferred alternative to a private equity sale, trade sale or management buy-out.

EOTs are not limited in their use to just traditional company structures. It is possible for Limited Liability Partnerships and companies that from part of a wider group to adopt employee ownership structures.

Sale of shares to an EOT – what does it look like?

  • A qualifying EOT must be established with a corporate acting as its trustee;
  • The existing shareholders/founder sells at least 51% of the share capital in the company to the EOT at full market value (using an independent valuer – the process is a joint one as between the trustee and the shareholders/founder);
  • On the sale of the shares, the purchase price will create a debt owed by the trustee company to the shareholders/founder which will be left outstanding;
  • Future company profits and reserves can be used to make contributions to the EOT, which in turn will be used to repay the outstanding debt;
  • No capital gains, income or inheritance tax liabilities should arise on the disposal of a controlling interest in a company to an EOT*;
  • Companies controlled by EOTs can pay tax-free cash bonuses to their employees of up to £3,600 per employee per year;
  • The arrangement may facilitate the retention of a strong, positive culture within an organisation, protect local jobs and enhance employee engagement in the decisions and future success of the company; and
  • Employees may be awarded tax advantaged share options under Enterprise Management Incentive Plans (“EMI”) and Share Incentive Plans (“SIP”).
I can’t recommend ZEDRA enough for their exceptional support with our Employee Ownership Trust. Thanks to their commitment, our transition to employee ownership has been smooth and empowering. We’re so grateful to have ZEDRA in our corner!
EOT Client
September 2024
Commercially minded, industry knowledge, friendly and down to earth approach.
EOT Client
September 2024
I would like to record the thanks of myself and my colleagues for your assistance on this project. All the way you have been responsive and pragmatic, and as helpful as possible. I will certainly recommend ZEDRA (loudly) every chance I get.
Intermediary
July 2024
They are always quick to respond and action requests well.
Client
September 2024

ZEDRA has significant expertise in acting as the trustee of EOTs.

That expertise is applied to ensure that the EOT is appropriately administered – the trust property (the shares) is generally applied for the benefit of all eligible employees on the same terms. However, a trustee may distinguish between employees based on remuneration, length of service and hours worked.

As a professional trustee, ZEDRA has a wide breadth of knowledge and understanding to be able to help founders/shareholders in establishing and administering an EOT. Established over 25 years ago, the ZEDRA Incentives Team provides specialist share trustee services, providing employer solutions for a large number of corporates, including employee benefit trusts for both private and listed companies including EMI’s and SIP’s.

We understand EOTs and can help you avoid common pitfalls in assessing whether an EOT is right for your situation and can provide the professional support required to establish one for you if it is.
We currently manage more than £1.2 billion of assets for businesses of all sizes; from 50 employees to over 1,000. Our services are designed with flexibility in mind, to ensure that the EOT is successful once established.

*Nothing herein shall constitute tax advice nor should it be construed as such – no liability is accepted for any reliance placed on this contents. Specialist tax advice should always be taken to ensure the tax implications for your specific situation are considered fully.

Our Incentives Team

Nicola Brown

Client Director, Head of Incentives

Rebecca Avery

Senior Trust Manager, Incentives

Matthew Longson

Senior Trust Manager, Incentives