Employee Ownership Trusts Explained
Employee Ownership Trust (EOT):
An EOT is a trust for the long-term benefit of the employees. Company owners can sell their company to an EOT, rather than a traditional buyer, which has advantages for the sellers and the employees.
The best-known advantage of an EOT is that the sale is completely tax free. However, there are also other significant commercial and practical advantages over a traditional company sale.
- No need to find a buyer. The Trust is formed by the seller.
- No price chipping. Pricing is set at a fair market valuation that broadly equates to a third-party sale value.
- No opposition parties. An EOT sale is collaborative rather than combative. You, the seller, has the same goal as the EOT buyer.
- No need to walk away: Sellers can remain as directors and retain a minority shareholding.
- No-risk benefit for employees: Employees do not become shareholders or provide any funds, making it a no-risk event for them. A sale to an EOT is a positive outcome for employees rather than a source of concern. Key employees can also be given direct shares or share options for additional incentivisation.
- No tax: qualifying EOT sales are completely tax-free. However, if an EOT is run incorrectly, the sellers can be liable for full tax on the sale. We are experienced tax advisers and will ensure this risk is addressed.
We offer a “one-stop shop” service for sales to an EOT. Within the K3 group we have the experts to cover all aspects of your sale to an EOT and we work closely with our partner law firms. We can provide a competitive fixed price quote to cover all the services required and deliver a seamless service from start to finish.
- Our corporate finance team provide an independent valuationto determine a fair sale price.
- Our corporate finance team will agree with you the best financial structure for the transaction; how much you will sell to the EOT, the forecasted impact on company cash and reserves, the timing of your proceeds and how this will be funded.
- Where third-party debt funding is required, our debt advisory team will seek the best funding package.
- Our tax specialists ensure the structure meets the detailed EOT tax requirements and submit clearances to HMRC to ensure the expected tax-free treatment is achieved.
- Our partner lawyers will form the EOT and produce the legal documents to complete the sale.
We provide a detailed “operating manual” to assist the directors manage the EOT going forward.
How can we help?
We offer a “one-stop shop” service for sales to an EOT. Within the K3 group we have the tax, corporate finance, and debt advisory experts to cover all aspects of designing your sale to an EOT. We work with partner law firms who will provide the legal services to form the EOT and implement the sale. We can provide a competitive fixed price quote to cover all the services required and deliver a seamless service from start to finish.
If you are considering an EOT or would like to find out more about how our services can benefit your business, please get in touch now:
0203 856 6720
