What is an Employee Ownership Trust (EOT)?

4 March 2021 Andy Ryder View all News

What is an Employee Ownership Trust, or "EOT"? An Employee Ownership Trust is a business ownership model in which a trust owns a controlling stake in a company on behalf of all its employees.

The UK government introduced Employee Ownership Trusts in 2014, hoping that more company shareholders would transition to corporate structures like the John Lewis model.

What is the John Lewis model?

The John Lewis business model is built around employee ownership, with each employee part-owning the business. This means they get a share of its annual profits and can have their say in how the company is run.

The motivation behind this business model is that it improves company performance due to each employee having a stake, and therefore an extra incentive, in the company’s success.

Are Employee Ownership Trusts supported by the government?

 


Yes, the UK Government is actively encouraging the selling of shares to an Employee Ownership Trust as a business exit strategy for shareholders. To do this they are offering significant tax incentives for selling owners, as well as annual tax benefits for employees.

The government likes the employee ownership model for several reasons:

  • It is a counter to short term capitalism.
  • It creates an enduring ownership structure.
  • It provides tangible employee benefits.
  • It encourages long term strategic planning and stimulates investment.

What are the benefits of an Employee Ownership Trust?

There are several notable benefits of an Employee Ownership Trust for all involved parties – these include the following:

For the Retiring Owner For the Employees For the Business
Receive full market value of your shares Fulfilment of working for an employee-owned company Preserve the culture and legacy of the business
Certainty of exit – not dependent on whims of trade buyers Direct rewards for hard work in growing the business Long-term view on strategy and investment
Zero capital gains tax on business sale Income tax free annual bonuses Incentivise and motivate employees
Succession can be gradual Incentive to improve business performance for everyone’s benefit. Retain senior shareholder expertise – gradual change in leadership
Rewards loyalty of employees who have helped your business succeed Simpler employee ownership model than direct share ownership Become a more resilient and stronger performing business

 

Find out more about Employee Ownership Trusts

At SHORTS, we believe an Employee Ownership Trust is an excellent ownership model that presents significant benefits to both selling shareholders, the business itself, and its employees.

Please read one of the following guides if you are interested in learning about EOTs in more detail. Or, if you would prefer, get in touch with one of our corporate finance experts.

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Find out everything you need to know about Employee Ownership Trusts as a business exit strategy with our new EOT guide.

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