Employee Ownership Trust (EOT) Services
For business owners selling to an EOT
Employee ownership is one of the fastest growing forms of business ownership in the UK with Employee Ownership Trusts accounting for much of this.
Why? For owners, by selling to an Employee Ownership Trust (EOT) they have the option of stepping back from the business and legacy they’ve built, whilst getting a financial return for their effort and investment without capital gains or income tax liabilities. For employees - there’s a step change and the EOT gives them a direct interest in their future, and success and often results in greater productivity and innovation through a more engaged and committed workforce.
Our EOT Services team works with vendors interested in selling their businesses to their employees using the Employee Ownership Trust (EOT) model.
The approach is particularly attractive through capital gains tax (CGT) relief when more than half (50%) of the company’s shares are sold to the EOT - often producing a better return than a third-party trade sale or by selling to private equity. There is also the added benefit of being able to financially incentivise employees with tax-free bonuses of up to £3,600 and potentially sharing in the proceeds if the business is later sold.
EOTs are not just an option for traditional companies. By converting to Limited or PLC company structures, Limited Liability Partnerships and companies that are part of a bigger group can also adopt an employee ownership structure. The fact of it is that it’s possible to find commercial and innovative ways to transition almost any type of business to an employee ownership structure.
What we do
Our EOT Services team is unique in that we work with clients as a part of their team throughout virtually all stages of a potential transaction from:
- The initial feasibility analysis
- To structuring and raising third party capital when desired to support the EOT transaction
- To implementing tax-advantaged share schemes alongside the EOT to incentivise key staff
- And also working with clients to build and develop an employee ownership culture both during the process and after the transaction
The aim is to ensure that clients have a full understanding of the process, what’s required and importantly their options before making what may be the most important decision of their business life. It always includes an initial free and no-obligation feasibility analysis at the start using to hand information along with a discussion with the vendor(s). This provides a detailed picture of what the transaction will look like and what’s involved so that clients are able to make an informed decision about whether selling to an EOT is the right choice. This is always worth the time invested.
Once the client decides to move forward and engage Doyle Clayton as it’s EOT advisor, a transaction memorandum is prepared. This sets out the transaction’s details, overall transaction structure as well as third-party and vendor debt to support the sale to the EOT along with potential tax-advantaged share schemes to be put in place alongside the trust.
When agreed, for clients wanting to use third party debt and whose financial condition allows for the raising of third-party capital, financing takes place along with an HMRC Transactions in Securities clearance application to ensure that the transaction isn’t subject to income tax.
Capital raising then follows using a full Confidential Information Memorandum (CIM) which is prepared and used to approach lenders known to be interested in EOT transactions.
Lenders are then met with to discuss the general transaction and confirm interest before being given the CIM - a personal touch that makes accessing third party capital a much easier and quicker process.
For interested lenders, due diligence meetings are then arranged and include clients, so that any additional information needed is provided and a firm financing commitment is obtained. Once offers are received, these are discussed and reviewed with the most appropriate lender selected after which the documentation and financial due diligence process takes place.
At this point, the trust-related and corporate transaction documentation will be prepared. Also, clients are helped to select the most appropriate EOT trustee directors and arrange for the third-party valuation that will be used when making the decision to buy the company at a fair market value on behalf of the EOT. During this time, our HR Consulting team will help the client to put in place and develop a strong employee ownership culture - essential for the alignment of employee interests and the business’s future success.
This inclusive approach ensures that transactions are always managed efficiently and in practice complete sooner. Importantly, our transaction fee and its structure are always discussed with clients at the outset so that they know what they are paying for. They are also able to meet upfront with our corporate finance, legal and HR team members to provide peace of mind that they’re getting the very best help, support and advice possible and of course good value for money.
To meet some of the members of our EOT Services team click here, or get in touch with Garry Karch, Head of the EOT Service, please click here.