Top tips: Considering an employee ownership trust (EOT) as an exit strategy for your business?

5 December 2022 / Insight posted in Enterprise series, Top tips

Employee ownership trusts (EOT) have become an attractive exit option. They provide an alternative to a third-party sale and allow a majority stake to be transferred to the employees. Given the rapidly changing tax landscape, a tax-free sale to an EOT is interesting to many entrepreneurial business owners. However, the process involves considerable organisational change and the transition must be properly managed for it to be successful.

In our webinar, our experts discussed the regulatory and organisation implications.

Top tips to consider when considering selling to an EOT

  • You are only going to sell your business once. There are lots of details to get right, so choosing the right advisers is key.
  • Consider the impact on your senior leaders. How will their roles and responsibilities change? Are they ready and what additional support will they need?
  • Carefully choose the make-up of your company and trustee directors.
  • Reflect on your role and value in the business. Who will cover this?
  • Be sure to understand the process and your relationship with the company after the sale.
  • Think about the impact on you personally. You will no longer own the business and must step away.
  • Before communicating the change, create a stakeholder map and include both internal and external stakeholders.
  • The valuation placed on the company is critical – if it is too high, HMRC may challenge it and tax the excess as if it were salary. If it is too low, are you as the founder getting enough to make the EOT worthwhile for you? Preparing a rough-cut valuation is straightforward so get your accountant to do this. This will give you a ballpark idea of the number before engaging with the leadership team in the business
  • Consider what, if any, changes you are expecting from employees. What is an employee owner’s responsibility, opportunity and reward (ROR)?
  • Think about how each group of your employees will be impacted by the company becoming employee owned. Does the flat reward structure of an EOT recognise the contribution of your “superstars” or is something else, such as a share option scheme, needed for them?
  • Communicate clearly with your people so they understand what it means to them and the impact on their role.
  • Don’t be dazzled by the apparent tax efficiencies of using an offshore EOT if the perception of your business being owned through a tax haven will upset your employees, clients and other interested parties.
  • It’s ok not to have all the answers. Employee ownership affords the opportunity for all employees to help create a successful future.

How we can help

Are you considering exiting your business? Contact us to discuss EOT and other exit options.

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