If you run a small or medium-sized business, chances are you’ve thought about the future, especially what would happen when you step back. Whether you’re nearing retirement or just keen to explore more sustainable ownership models, Employee Ownership Trusts are reshaping how business succession is handled. They’re not just an exit strategy, they bring a fresh sense of purpose, boost morale, and can drive growth from within.

Continue reading to discover why EOTs are a game changer for small and medium enterprises and their benefits!

What Is an Employee Ownership Trust?

An Employee Ownership Trust, also known as EOT, is a structure where a controlling share of a business is held on behalf of its employees, giving them a meaningful stake in its future. If you’re exploring how to become employee owned, an EOT provides a practical and rewarding route, enabling owners to pass on the company to those who know it best without the disruption of a traditional sale. It’s not about handing over the reins overnight, but about creating long-term security and shared value across the workforce.

Why It’s a Natural Fit for SMEs

Selling to a competitor or private equity firm often means a cultural overhaul, potential job losses, or even relocating operations. If you’re proud of what you’ve built, this can be a hard pill to swallow.

An EOT allows you to protect your values. You keep the business rooted in its community, retain the team that made it successful, and maintain continuity in day-to-day operations.

And while employees don’t manage the company directly (unless they already do), they benefit financially and emotionally from ownership, which tends to lift engagement and performance.

Tax Benefits

Employee Ownership Trusts have highly tax efficient for the Sellers, the Company and the Employees in that:

  1. Sellers can sell their shares and pay no capital gains tax (subject to conditions). There are no financial limits concerning this relief so it doesn’t matter whether the business is sold for £500,000 or £50m, there would be no CGT payable by a seller.
  2. Employees can earn up to £3,600 per annum tax-free (in terms of income tax) as a profit distribution. National Insurance remains payable.
  3. Any sums paid to employees by way of profit distributions are treated as an employment related expense for the company, meaning that your taxable profits are lower and this results in a saving in corporation tax.

Is It Right for You?

Not every SME will be a perfect candidate. Your business needs to be profitable and capable of sustaining the buyout over time since EOTs are typically funded by future profits. You’ll also need to be comfortable with a trust-based governance model and be ready to share financial transparency with your staff.

That being said, many founders find the emotional return just as rewarding as the financial one. You get to preserve the culture, honour your team’s contribution, and know your life’s work isn’t just absorbed into something unrecognisable.

Steps to Making the Shift

The journey to employee ownership begins with solid planning. First, assess the financial health of your business. Then, work with advisers who understand the EOT model inside out. Remember that legal and tax structuring is key here.

You’ll need to establish the trust, agree on a fair market valuation, and structure the financing, often through vendor loans repaid over time by the business. Finally, you’ll want to prepare your team for the shift, making sure they understand what it means and how it benefits them.

Conclusion

EOTs aren’t a trend, they’re a movement. More and more SME owners are choosing purpose over profit alone and people over private equity. And it’s working. By transitioning your company to employee ownership, you’re not just planning your exit, you’re also securing its future. You’re giving loyal staff a stake in something bigger. And perhaps most importantly, you’re building a business that stands for more than just margin.

Start Your EOT Journey

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