We are experts in succession and change of ownership.

To achieve the significant tax advantage of selling to an employee ownership trust, you will need to sell a majority stake to the employee ownership trust.

However, if the tax advantage is not the key driver, you may sell a smaller percentage, and consider passing ownership to an EOT on a phased basis.

If you are selling a majority stake but not 100%, you should consider that the tax benefit of zero tax is only available on the initial sale, and subsequent sales of shares will have a tax cost.

This is a complex decision, we can support you in considering this decision, as it not only impacts the initial transaction, but can have a continuing and significant impact on the business and the EOT for many years.

We see the smooth transition of succession and the minimal disruption to day-to-day management as one of the most positive aspects of employee ownership trust transactions.

It is important to focus on the EOT transaction being a sale of shares, to a new owner, not a change of management. Clearly, the management team have a new owner to report to, and this becomes one of the formalities of being EOT-owned.

Where the transaction is being driven by retirement, we have found the transitional nature, supports smooth handovers, whether this is to existing management teams or via recruitment of additional leadership or management resources.

The starting point for any employee ownership trust transaction should be market value. The vendors may choose to sell at a discount to market value, however this decision should be informed by an assessment of the market value.

We have many years of experience in valuing companies and can assist you in arriving at market value. It may be considered appropriate that a valuation is arrived at with an independent party. We work with a panel of valuers who will deliver an independent market valuation.

It has always been our principle that there are two parties to the transaction, the current shareholders as vendors and the em. Although the vendors may be appointed to the employee ownership trust board, as trustees, this is a separate role and needs appropriate independent advice.

Recent government guidance has outlined the importance of separate advice for all parties.

We work with a panel of independent solicitors, who would normally act for the EOT in the process; alternatively, we can work with your preferred solicitor, if this is considered appropriate.

Many sales to employee ownership trusts are in some way funded by the vendors, not dissimilar to a traditional sale to an MBO team.

We recommend a strong position of the need for an EOT deal to reflect commercial norms, and therefore if the vendors are part funding the transaction, they should take commercial levels of security, without breaching the EOT legislation.

This security will often take the form of a charge over the assets of the trading company. Where the transaction is being partly funded by a debt provider, or the business has historical debt arrangements, the relative security of each funder will need to be agreed upon and documented.

Employees benefit in multiple ways. They experience non-financial benefits, like increased involvement in business decisions and a sense of shared ownership.

Financially, they enjoy sharing future profits, receiving up to £3,600 tax-free. Additionally, they have the opportunity to share in the value if the business is sold.

The employee ownership trust legislation provides considerable flexibility in relation to trustees; however, it is a requirement that the trustee board, and not the vendors have control. Therefore, the make-up of the board is important.

We’ve successfully executed several transactions where employee representatives were appointed to the EOT board before an independent employee voting process. This election and appointment of employee representatives has then followed the initial transaction.

Alternatively as part of the preparation for a transition to employee ownership an election and voting process to elect the employee representatives may be useful ahead of the transaction.

We will work with you to consider the best option.

An independent trustee may also be considered a positive addition to the trustee board, we discuss this in another question.

We often get asked this question, before, during and after the transaction has completed.

There’s no straightforward answer, and it will vary based on the company and the composition of the EOT board, among other factors. However, we often advise that an independent trustee will be a positive addition to the board, purely because of the independence of the role. All other trustees will have more than one perspective in their role, either as founder, who may now be a creditor of the EOT, or for an employee, in their position as an employee. The independent trustee can bring guidance on the role, ensure the focus remains on the employee beneficiaries and assist the board in delivering as a board.

We would strongly recommend that you do not engage with employees where an employee ownership trust deal is still considered an option, rather than being the direction of travel.

Creating an expectation amongst employees that is not delivered may impact morale.

Once you have decided that EOT is the way forward, we would recommend early engagement, once you have clarity on the structure and timetable for the transaction.

The legal process involved in transitioning to an employee ownership trust is largely within the control of the vendors and their professional advisors (unless external funding is being raised). 

This means that the process can be completed within a reasonably short timeframe when compared to other change of ownership transactions.  Typically the legal paperwork can be completed within 6 weeks, however it is important to ensure that the management team, trust structure and employees are all suitably engaged and prepared for the transition.  As such we feel that, for transactions without external funding, from start to finish, a minimum of 2 months should be planned for. External funding can add another 6 weeks to this process.