Insights

For business owners looking for a sustainable, long-term succession plan that benefits both themselves and their employees, Employee Ownership Trusts (EOTs) offer a compelling solution. Employee ownership is increasingly being recognised as a strategy to drive engagement, improve business resilience, and ensure a stable future. By transitioning to an EOT, businesses can foster a collaborative workplace culture while securing financial and operational continuity. The model not only benefits employees but also enables business owners to exit their businesses in a structured, tax-efficient, and ethical manner.

What is an Employee Ownership Trust?

An Employee Ownership Trust is a legal structure that allows employees to become indirect owners of a company. The trust holds a controlling stake in the business on behalf of the employees, ensuring they have a voice in decision-making and a stake in the company’s financial success. Unlike traditional ownership models where businesses are controlled by a single owner or a small group of shareholders, EOTs distribute ownership benefits among employees, creating a sense of shared responsibility and investment in the company’s future.

EOTs provide long-term stability, promote employee commitment, and drive business growth by ensuring employees are engaged in decision-making and performance outcomes. With an increasing number of companies embracing this model, it has proven to be an effective means of succession planning while enhancing productivity and organisational success.

The Key Advantages of Employee Ownership Trusts

Enhanced Employee Engagement and Productivity

Employee ownership fosters a culture where employees feel more accountable for the business’s success. When employees have a vested interest in the performance of the company, they are more motivated, engaged, and committed to achieving its goals. Studies show that employee-owned businesses tend to have higher productivity levels, greater innovation, and stronger financial performance due to increased collaboration and accountability.

With greater involvement in decision-making and operational processes, employees in EOTs take ownership of their roles, making them more proactive in problem-solving and innovation. This increased level of engagement directly contributes to improved efficiency and the overall competitiveness of the business.

Retention of Key Talent and Workforce Stability

One of the significant challenges businesses face is retaining top talent. Employee Ownership Trusts help attract and retain skilled employees by offering a unique, long-term incentive. Employees see the opportunity to be part of an employee-owned company as a compelling benefit, particularly those seeking a collaborative and inclusive work environment. As a result, businesses experience reduced turnover, continuity of skills, and greater knowledge retention within the organisation.

Additionally, EOTs foster a workplace culture where employees feel valued and recognised for their contributions. With a structured ownership model, employees benefit from both job security and financial rewards, creating an environment where they are more likely to stay and grow within the company.

A Structured Business Succession Plan

For business owners considering succession planning, an EOT provides a structured, gradual exit strategy. Instead of selling the business to an external buyer or merging with another company, owners can sell their shares to the trust, allowing for a smooth transition. This ensures continuity of the company’s culture, values, and vision while safeguarding the interests of employees. Business owners who want to preserve their legacy while rewarding their employees for their contributions find EOTs an ideal solution.

Another advantage is that the trust-based structure enables succession planning without the need for disruptive leadership changes. This minimises uncertainty and allows businesses to transition more sustainably, avoiding the risk of cultural shifts that could negatively impact operations.

Tax Benefits for Business Owners and Employees

EOTs offer significant tax advantages for both selling owners and employees. Under current UK legislation, business owners who sell a controlling stake to an Employee Ownership Trust may qualify for capital gains tax (CGT) relief, potentially reducing their tax liability. Furthermore, employees within an EOT structure can receive tax-free bonuses up to a certain threshold, further incentivising their participation in the company’s success.

In addition to these direct tax benefits, an EOT can also create financial stability within the company, as profits are reinvested back into the business rather than being extracted by external shareholders. This can lead to stronger financial health and more investment in employee development and business expansion.

Strengthened Business Resilience and Longevity

A well-structured Employee Ownership Trust contributes to long-term business resilience. Unlike external sales or acquisitions, which can lead to instability or culture shifts, an EOT maintains organisational stability. Because employees are directly invested in the business’s performance, decision-making processes become more strategic, with a focus on long-term sustainability rather than short-term financial gains.

EOTs also encourage a culture of continuous improvement, where employees are empowered to contribute to the company’s strategic direction. The shared responsibility model ensures that the business remains agile and adaptable, even in changing market conditions.

Implementing Employee Ownership Trusts with Evoke Management

At Evoke Management, we specialise in assisting businesses with the transition to Employee Ownership Trusts. Our team of experienced consultants can guide you through the process, ensuring a seamless and effective transition. Here’s how we can support you:

1. Feasibility Assessment

We conduct a thorough analysis of your business to assess its suitability for an EOT. We evaluate your ownership structure, financial performance, and workforce demographics to determine if transitioning to an Employee Ownership Trust is a viable option.

2. Financial Modelling and Valuation

Our Fractional Finance Directors work closely with you to develop financial models and conduct a valuation of your business. This helps establish a fair sale price for the trust, ensuring an equitable arrangement for all stakeholders.

3. Structuring and Governance

We assist in designing the structure and governance framework of the Employee Ownership Trust, including trust documentation, employee representation mechanisms, and decision-making processes to align with your business’s specific needs.

4. Communication and Change Management

The transition to an Employee Ownership Trust requires clear and effective communication. We help develop a comprehensive strategy to engage employees, explain the benefits of the trust, and address any concerns. Change management is critical to ensuring a smooth adoption of the new ownership structure.

5. Ongoing Support and Strategic Planning

Our consultants provide ongoing support to ensure the successful operation of the Employee Ownership Trust. We assist in financial management, performance monitoring, and long-term strategic planning to help businesses maximise the benefits of employee ownership.

Work With Us

Transitioning to an Employee Ownership Trust can transform your business by fostering a culture of shared success, enhancing employee engagement, and securing long-term sustainability. At Evoke Management, we are committed to helping businesses like yours unlock the full potential of employee ownership.

Unlock the power of employee ownership. Contact Evoke Management today to begin your journey towards implementing an Employee Ownership Trust.

Book your free 30-minute consultation with our experts to explore how we can support you in transitioning to an Employee Ownership Trust: Schedule your consultation now.