Employee Ownership – A Business Succession Solution
Business owners understand that their employees are their greatest asset and as such, it is becoming common practice for current shareholders to view their employees as their successors. Rather than employee share ownership being direct, the current shareholders can sell their shares to an Employee Ownership Trust (EOT) for the benefit of all eligible employees, meaning share ownership is indirect.
This route provides company shareholders with an alternative exit strategy that does not include an external buyer.
There are a number of benefits of selling to an EOT including the following:
- Sellers can dispose of their shares and receive cash proceeds at full market value
- Does not require all shareholders to dispose of their shares
- The sale should be exempt from Capital Gains Tax
- Structure enables greater employee engagement and creates a platform for better communication within the company
- Qualifying employees can receive an income tax free bonus of up to £3,600 per year
In order for the disposal of shares to an EOT to be tax-free in the hands of the shareholders, there are a number of conditions that must be met, and an application must be made to HMRC ahead of the sale to confirm these have indeed been met.
EQ have assisted many clients make the transition to become employee owned. Our Partner, Doug Rae has headed up the delivery of this succession solution for several years, advising on numerous transactions, building a real wealth of expertise in this area. Doug commented, “EOTs have now entered the mainstream as a solution for an owner wishing to exit or incentivise staff and we expect to see the trend towards employee ownership accelerate as it’s a quick and effective solution for the right business. EQ have delivered dozens of successful EOT solutions and would be happy to speak with any business seeking to consider such a solution.”