What happens when an employee leaves an EOT?

An Employee Ownership Trust (EOT) is a special type of trust that holds a company's shares for the benefit of all its employees.

An EOT is a form of indirect employee ownership that allows employees to have a stake in the company they work for. This leads to several benefits for both employees and the company as a whole. But what happens if an employee leaves a company owned by an EOT, whether through retirement, resignation or dismissal?

Employees are beneficiaries, not owners 

An employee of a company owned by an EOT is a beneficiary of the trust. The shares in the company are held in trust for the benefit of the employees. This is an important distinction to make, particularly when it comes to leaving the company. 

The Employee will no longer be a beneficiary 

Assuming the employee does not own any shares in the company directly via a separate employee share scheme, such as an EMI scheme, the answer to what happens when they leave is actually very simple.  

When an employee leaves an EOT, they are simply no longer a beneficiary of the trust.  

They are no longer entitled to the rights of employees, such as profit shares and a say on how the business is run. 

As the employee never directly owned any shares in the company, there are no shares to transfer back, or any requirement to report anything to HMRC. The EOT will continue to own the shares for the benefit of all remaining employees.

Benefits to the business 

When exploring employee ownership options, it is important to consider what might happen if employees leave.

There are several issues to consider when granting direct share options, including tax compliance, employment laws, administration and the potential dilution of ownership for existing shareholders. It can also complicate succession planning if there are pockets of shareholdings outside the business. 

An Employee Ownership Trust enables you to reap the corporate benefits of employee ownership, such as greater employee engagement, improved business performance, reduced absenteeism and a greater drive for innovation while providing benefits to all employees.

You can learn more by downloading our free EOT guide below.