After witnessing an increased interest in Employee Ownership Trusts across the market and having just completed one of the largest EOT acquisitions in the UK, Glenville Walker thought it was only right to provide some insight into the world of employee ownership.
Employee Ownership Trusts (EOTs) were introduced in September 2014 as a viable way of offering employee incentivisation and a tax efficient exit route for business owners.
How can an EOT incentivise my employees?In a post-pandemic world, staff retention has become a real stumbling block for many businesses. An EOT essentially allows for a business to become owned by its employees creating an instantaneous inclusive culture. As opposed to selling to a third party buyer, selling to an EOT also allows the business to retain its culture and core values. There is also an opportunity for employees to receive an annual bonus allowance of up to £3,600 free of income tax.
How do EOTs provide an exit route for current business owners?
Business owners can sell all or some of their shares to an EOT and a sale of this kind will attract nil rate Capital Gains Tax. The main stages are:1. Valuation
Corporate financiers should be engaged to value the business to ensure the sellers receive market value for their shares.
2. Creation of the trust
Establishment of the trust company and trust board.
3. Sale of the company to the new trust company (EOT)
By way of a Share Purchase Agreement between the new trust company and the selling shareholders.
Other than the tax savings and incentivising employees, what are the benefits?• An immediate exit route with a friendly buyer right under your nose!• Maximising sale proceeds for the retiring business owners by achieving market value for their shares and removing the risk of a price chip by a third party purchaser.• The ability to shape the transaction to fit both the sellers and the business needs moving forward (within the legislation).• The ability to defer consideration to ensure the company is not left strapped for cash whilst it pays out the selling shareholders.• Timing of the transaction can be stipulated by the sellers.• Funding options are available in order to fund the transaction.• Strategically creates a more resilient and adaptable business which is helped by employees being more engaged and committed to the future.• A quicker and smoother transaction than a third party sale.
Is an EOT only achievable by the current owners exiting the business?
Not necessarily. An EOT can be set up in anticipation of a future exit as part of a succession strategy giving current employees a clear vision into the future. There is also no requirement for all the shares in the business to be sold, so long as the EOT acquires over 50% retaining a controlling interest in the company.
Glenville Walker advise on one of the largest EOTs in the UK.
Our team at Glenville Walker recently advised on the sale of Warrant Group to an Employee Ownership Trust. Our corporate team were engaged from the outset with the aid of Mark Kearsley, Tax Partner at DSG Chartered Accountants and Corporate Financiers, Stephen Stuart and Rajesh Sharma of Tilston Ventures. The team worked collaboratively to assess the best exit for the client. Warrant Group underwent a group re-organisation before ultimately selling to the EOT. Click here to read more.
If you feel an EOT may be right for you and your business or you would like more information, feel free to contact our specialist corporate team on 0151 305 9650 or email email@example.com
This article is not intended to be interpreted as advice.