27 May, 2021 - 20:55

Time to sell? Time for an Employee Ownership Trust?

An Employee Ownership Trust (EOT) is a form of employee ownership where a Trust acquires a majority stake in a business on behalf of all employees, writes David Scrivener – Corporate Finance partner, Ensors Chartered Accountants

Over recent years the EOT has become a much more widely used tool to sell a business (tax efficiently) and has also become a valuable way to engage the workforce.

EOTs were already on the rise pre-pandemic fuelled in part by a generous 0 per cent tax structure for transactions of this nature. And, in the last year, their popularity has continued to soar.

Not all businesses will be suitable for an EOT. There needs to be a genuine desire for long term employee ownership.

If this is embedded in an organisation then an EOT can provide a controllable, tax efficient  vehicle to sell as well as providing a great catalyst for fresh optimism, commitment and, most importantly, engagement from staff.

EOTs have more benefits for vendors than just the very attractive 0 per cent tax rate on proceeds. Although some older EOTs were structured as gifts it has become more the norm for the sale to take place at a market rate determined independently by accountants. 

An initial valuation can provide the vendor with an idea of the consideration which they would achieve, allowing this option to be assessed before advising staff and letting the proverbial genie out of the bottle. 

Although the market for buying and selling businesses remains buoyant, there has been a noticeable shift in their characteristics with many deals now comprising of elements that require harder negotiations.

One of the more common and more challenging characteristics being ‘deferred consideration’ – that is money paid after the deal is done. An EOT exit is generally a less stressful method to realise the value of a business compared to a trade sale and comfort is drawn from the fact that it is the trusted management and employees of a business that will be given the opportunity to share ownership in the business that they have helped to build. 

The deal needs to be fair and affordable, with the independent trustees needing to be satisfied that the deal is in the interests of the employees. Clearance regarding the tax implications is also required from HMRC.

If you would like further information on how an Employee Ownership Trust could help you realise the worth of your business, please contact our Corporate Finance team.

They have a proven record in advising on successful EOTs, including structuring the deal and securing funding. 

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