An Employee Ownership Trust (EOT) enables a company to become owned by its employees. Far simpler than creating employee ownership by allocating all the shares to employees individually, an Employee Ownership Trust can be set up by a company’s existing owners, perhaps as part of their exit or succession planning strategy, or by founders starting a new business which they wish to be employee-owned.
The Employee Ownership Trust was created by the Finance Act 2014, to encourage more companies to become employee owned.
Importantly for many business owners, an EOT creates two tax breaks:
- Those selling their shares to an EOT may do so free of capital gains tax
- Once a company is owned by an EOT, it can pay annual bonuses to its employees free of income tax
There are two main conditions to enable the tax breaks:
- The EOT must hold more than 50% of the shares in the company
- If employees receive any benefit from the EOT, they must all be included and on the same terms
Might an Employee Ownership Trust be right for your company?
Employee ownership has the potential, by sharing the rewards of your company’s success with its employees, to create a powerful incentive to engage in the business and work together to improve its performance for everyone’s benefit. You can find more evidence on our Employee Ownership page.
You should consider an EOT if:
- You are looking how to retire from the ownership of your company in a way which creates a strong platform for future success in the interests of you, your business and its people, or
- You don’t feel a trade sale or management buyout is feasible or the best solution, or
- You want to start a new business with maximally committed and engaged people and a strong shared purpose, or
- You work in a business which needs to find a succession solution but has not been able to do so.
In the present difficult economic climate are you asking, “What can we do to maximise our chances of survival and bouncing back?”
We suggest that you read our short guide, in which we look at the role employee ownership can play: Employee Ownership and Business Recovery