When it comes to handing over the reins of your business, finding the right succession path is vital. For many business owners, an Employee Ownership Trust (EOT) offers an innovative solution that not only safeguards their legacy but also recognises the hard work of their employees, all while providing notable tax perks.
Understanding the Employee Ownership Trust
An EOT allows a business owner to transfer the ownership of their company to their employees. Rather than selling to an external buyer, this model places control directly into the hands of the workforce. This isn’t just about a change in ownership – it’s about cultivating a culture where employees feel deeply connected and accountable for the company’s success.
Why Opt for an EOT?
Safeguarding Your Legacy: Passing your business on to an EOT ensures it remains in familiar, trusted hands. Employees, who understand the business inside and out, are often best placed to uphold its values and continue its journey.
Employee Recognition: Transitioning to employee ownership is a tangible way to appreciate the dedication of your team. When employees become stakeholders, they often feel more motivated, leading to increased morale and retention.
Tax Incentives: One of the standout advantages of EOTs is the potential for tax savings. Selling a controlling interest to an EOT can be done without incurring Capital Gains Tax. Moreover, employees can receive up to £3,600 annually in tax-free bonuses, although National Insurance contributions still apply.
Setting Up an EOT: What to Consider
While the benefits of EOTs are substantial, implementing one isn’t a straightforward process. It’s crucial to engage legal and financial advisers who specialise in employee ownership to navigate the complexities and ensure compliance with all relevant regulations.
Peter Hollis, who successfully shifted his practice to an EOT, shares his experience: “You need staff who are prepared to take responsibility to run the firm. You could go down the route of a management buy-out or private equity, but I quite like the dynamic of people owning the business they work in.”
Could an EOT Be the Right Move for Your Business?
For business owners who want to see their company flourish after they’ve stepped back, while also rewarding the people who helped build it, an EOT is a compelling option. It’s more than just an exit plan – it’s a way to ensure the business’s ongoing success and to align employees’ interests with the company’s future.
If you’re considering this route, consulting with succession planning professionals can help you craft a transition strategy that works for both you and your employees. With the right support, you can create a plan that leaves a lasting impact and sets your business on a path for continued growth.
➡️ Contact us today to find out how we can support your succession planning journey.
