Employee Ownership Trust (EOT) Services
Selling your Business to an EOT in the UK
What is an Employee Ownership Trust?
Employee Ownership Trusts (EOTs) were introduced in the Finance Act 2014. For employees, the EOT gives them a direct interest in their future, and can result in greater productivity and innovation at work. They often become a more engaged and committed workforce. Furthermore, if the company is sold at some point in the future, qualifying employees will share in the sale proceeds.
Employee Ownership Trust - Services we offer
Doyle Clayton became an EOT in 2019, the second law firm in the UK to do so. Having managed our own EOT restructure (and those of other companies), we can advise you and also relate our first-hand experience.
Our EOT services team works with vendors interested in selling their businesses to their employees using the Employee Ownership Trust model. Our team is unique in that we also work with clients throughout virtually all stages of a potential transaction.
- We offer an initial FREE feasibility analysis
- If you require advice on how to get the company valued we can support you. A professional valuation when setting up a trust is vital
- Our team can support you in structuring and raising third party capital to support the EOT transaction
- Our team can help you to implement tax-advantaged share schemes to incentivise key staff
- If you need to obtain HMRC clearance, we can help
- We can draft the necessary documents so that everyone's interests are protected
- We also work with clients to build and develop an employee ownership culture both during the process and after the transaction
We aim to ensure that vendors have a full understanding of the process and what’s required. Most importantly, we explain their options clearly as they will be making, perhaps, the most important decision of their business life. We always include an initial free and no-obligation feasibility analysis at the start of the process using examples from real-life. In addition, we provide a detailed picture of what the transaction will look like and what’s involved. As a result, potential vendors are able to make an informed decision about whether selling to an EOT is the right choice. This free analysis is always worth the time.
Structure of an Employee Ownership Trust
What types of businesses do we work with?
EOTs can be used by businesses in many different sectors for a variety of reasons. Are you thinking about selling your business in order to release some of the capital? Are you looking to retire and want to sell your business to your own employees? Perhaps you want to re-structure your business in a more tax efficient way? Are you looking for help with capital and an employee buy-out seems like the best option? Selling part of your business to an EOT can be a great option.
Businesses both small and large have benefitted from selling to an Employee Ownership Trust. Our experienced team have worked with restaurants, factories and electrical contractors as well as many other industries. From fashion and music to healthcare and publishing companies, a growing number of company owners are considering the benefits of setting up an Employee Ownership Trust.
Is an Employee Ownership Trust right for your company?
This popular business structure has many advantages for both the business owner and the employee. From generous tax benefits for the vendor to a sense of inclusion for the employee, there can be many benefits for both the vendor and the employee. Therefore, it is well worth considering an EOT as a future business structure.
Advantages of an EOT for the vendor
- The company remains independent and vendors can create an enduring legacy
- Time to complete is generally less than third-party sale alternatives. For example, this can be as little as 8-12 weeks compared to 9-12 months for a third party sale
- Transaction expenses tend to be much lower
- Vendors sell at fair market value with greater certainty of completion, as they control the major aspects of the transaction
- No need to engage with third party buyers which can be a distracting process. Furthermore, the vendor does not have to share information with competitors
- May provide a competitive advantage with respect to attracting and retaining key staff
- Sale of a controlling interest in a company to an EOT is exempt from CGT (Capital Gains Tax)
- As of April 2020, sale proceeds do not deplete the Business Asset Disposal Relief (formally known as Entrepreneurs’ Relief allowance), which has been reduced from £10,000,000 to £1,000,000
- Excess cash may be distributed to the vendors tax-free as part of equity value
Advantages of an EOT for an employee
- Can provide long-term stable ownership which can preserve jobs
- Employees can have 'a voice' in how the business is run giving them a sense of fulfilment and achievement. This can improve the morale of the company resulting in higher productivity and profitability
- Employees may also qualify for tax-advantaged share schemes such as EMI options (individuals) or Share Incentive Plans (all employees)
- Employees in a company controlled by an Employee Ownership Trust qualify for income tax-free bonuses up to £3,600 annually (National Insurance Contributions apply)
- If the company is sold at some point in the future, qualifying employees will share in the sale proceeds
What are the criteria for setting up an EOT?
If you are considering whether an Employee Ownership Trust is right for your business, it is worth noting the following:
- Your current company should be a trading company or part of a trading company
- All employees must benefit from the scheme and be treated equally
- The trust should own 50% of the capital of the business at all times
- A new business can follow an EOT structure
- EOTs can be combined with EMI options or other tax-advantaged share schemes
“Garry has proved himself to be the leading banker for Employee Ownership Trusts in the UK, allying American experience to evolving British practice. With charm and expertise Garry has made it possible for British business owners to sell to employees at a fair price.”
- Malcolm Hurlston CBE Chairman Employee Share Ownership (ESOP) Centre
Employee Ownership Trusts - FAQ
How is the purchase funded?
- Free cash on the balance sheet
- With a loan from the vendor - the EOT trustees borrows money from the vendor with a company guarantee. The loan is repaid to the vendor over time
- With a loan from the bank - A sum of money is borrowed from the bank and the trustees repay this to the bank over time
How is the business valued?
The EOT's trustees need to agree a fair price with the vendors. An expert share valuation may need to be carried out. Our EOT team will be able to advise you further on this.
Some EOT case studies
Garry Karch is one of the UK's leading advisers on Employee Ownership Trusts. A 30-year career has seen him complete over 150 transactions in the UK and the US with a combined value of more than £750m. Some of these projects include:
- Advising on the sale of a restaurant chain in East Anglia to an Employee Ownership Trust. This included structuring the transaction and conducting a full process to raise capital to support the transaction
- Advising a metal fabrication business in the Northeast of England with respect to a sale of the business to an Employee Ownership Trust. The transaction included the valuation of the business. In addition, this sale included the structuring of vendor loans on the same terms and conditions that third-party lenders would provide
- Working with the vendors of an Essex-based electrical and mechanical contractor on the sale of the business to an EOT. This also included the business valuation and overall transaction structuring
"To the point ... free of technical jargon. Just what I needed to share with my colleagues to help us understand what lies ahead as we embark on our journey into Employee Ownership" - Client
Garry Karch - head of our EOT team
Garry is head of Doyle Clayton's EOT team. He has vast experience working on EOT projects both in the UK and abroad and is an expert in his field. If you are thinking of selling your business to an Employee Ownership Trust, Garry and his team can offer advice. Garry manages the entire process - from structuring the transaction to raising the capital to support the sale to the EOT through to completion.
Garry is a regular conference speaker on EOTs, a social media commentator and author.
For more information on Garry, please visit his personal profile page.
Recent Webinars on Employee Ownership Trusts
In the 45 minute webinar, Garry Karch introduces EOT's and the advantages owners have when selling their company to its employees over venture capital or a trade sale.
In the 45 minute webinar, Garry Karch looks in detail at the advantages and benefits of selling a company to an EOT over a trade sale or selling to private equity.
Get in touch with Doyle Clayton
If you are looking thinking about selling to an EOT, we can help. To make contact call us on +44 (0)20 7329 9090 or email us at firstname.lastname@example.org and we will call you. Please leave a message if you can’t get through. We will respond quickly to all enquiries.
We are also happy to advise you by video call. One of our team can often advise you on the same day you contact us.