Transition of Ownership
In an EOT, the selling business owners transfer their shares to a trust on behalf of the employees. This ensures that ownership remains in the hands of the workforce, securing the company’s future and its core values.
Trust Management
The trust becomes the legal owner of the business, safeguarding the interests of both the employees and the company. A trustee board, comprising representatives from the workforce and independent professionals, oversees the trust’s activities.
Employee Engagement
By becoming owners, employees gain a sense of shared responsibility, leading to increased motivation, productivity, and loyalty. This engagement fosters a collaborative culture, driving the company’s growth and innovation.
Rewards and Benefits
As part owners, employees may receive financial rewards through profit-sharing schemes or employee bonuses, further aligning their interests with the company’s success.
Company Governance
The activities of the Company remain governed by the Directors of the Company. The employees do not ‘run’ the Company. Employees may have a greater influence on the direction of the Company but the day-to-day operation of the business remains the responsibility of the directors, which may include the Sellers. The Trust acts in the same way as a shareholder would act in a traditional company whereby the Trust will have to approve certain decisions or transactions, for example the amount of the employee distribution.
Benefits for Selling Business Owners
Retirement Planning
Selling business owners can realise the value of their life’s work while ensuring a smooth and secure transition for their employees.
Tax Advantages: Under current tax legislation, subject to certain rules, a Seller can sell there shares in the Company and have no liability for tax. This means that the Seller can sell their shares entirely tax-free and this can result in significant tax savings.
Preserving Legacy
An EOT allows founders to protect their company’s legacy, culture, and values, ensuring that the business continues to thrive under employee stewardship. Founders can, and often do, remain in the business and can continue to earn a fair market salary.
Benefits for Employees
Ownership and Influence
Employees become part owners, giving them a say in the company’s decision-making processes and fostering a sense of empowerment and pride.
Job Security
An EOT provides stability and security for employees, as the trust’s primary objective is to safeguard the long-term viability and prosperity of the business.
Financial Participation
Employee ownership allows workers to share in the financial success of the company, creating a direct link between their efforts and the rewards they receive. After creation of the EOT, employees will receive a share of the profits of the Company. This employee distribution of profits is also deductible from the Companies corporation tax thereby reducing the tax liability of the Company.
The Rise of Employee Ownership Trusts
Employee Ownership Trusts are rapidly gaining popularity as a preferred succession planning option. Here are some compelling statistics:
The number of Employee Ownership Trusts has increased by over 50% in the past five years, demonstrating a growing trend in adopting this model.
Research shows that companies with employee ownership have higher productivity levels, with studies reporting up to a 4% increase in productivity compared to conventionally owned firms.
A survey conducted by the Employee Ownership Association revealed that 75% of business owners who sold to an Employee Ownership Trust were satisfied with their decision.
Governments worldwide are recognising the benefits of employee ownership and are introducing supportive policies and tax incentives to encourage its adoption.
