Employee Ownership Trusts (EOTs) have grown in popularity in recent years, since their introduction in 2014. By setting up an EOT, business owners can either completely exit, or take a step back from their business, transferring shares in the company into a trust which benefits all employees.
There are a variety of advantages to the EOT structure, including tax efficiencies and increased employee engagement. An EOT offers business owners a tax-free exit, as no Capital Gains Tax (CGT) arises on the disposal of the shares to the trust (provided the EOT fulfils the required statutory conditions, which allow it to be tax neutral). The owner receives full market value for the shares, as an independent share valuation is required as part of the EOT process. The structure also provides flexibility in how the owner approaches their future role in the business, with the option to fully exit the company or retain part of their shareholding, provided they have transferred at least a 51% controlling interest to the EOT.
EOTS can also be a good way for business owners to help preserve the culture of a company when they decide to retire, without selling to a third party. Employees are given the opportunity to own the company at minimal cost to them and receive the benefit of tax free bonuses of up to £3,600 a year.
Our experienced corporate team can help guide you through the legal issues in setting up an EOT, working with key tax advisors as required. Using our commercial expertise and a practical approach, we help ensure that the process is completed efficiently, and that the interests of all stake holders are protected.
EOT services we can advise on include:
- Pre-transaction reorganisations or restructuring
- Incorporation of the corporate trustee of the EOT
- Drafting governing documents and statutory registers for the corporate trustee
- Drafting trust deed to establish the EOT
- Drafting share purchase agreement for the transfer of shares to the EOT
- Drafting ancillary documents for the sale transaction, including Stock Transfer Forms, Board Minutes and Companies House forms
- Drafting vendor financing documents for deferred consideration
- Drafting shareholders agreement between the EOT and any continuing shareholders
- Ongoing advice for trustees.
We are members of the Employee Ownership Association.