Successions planning update – employee ownership trusts
An often-overlooked succession option
Employee ownership trusts (EOTs) are an alternative to a management buyout (MBO) allowing you to pass control to the staff within your business. The popularity in EOTs has tripled in the last decade and is projected to continue to grow.
This succession option passes a controlling stake in the business to the employees who become stakeholders and share in the decision making and ongoing profitability of the firm. This arrangement does not have to be for the entire business. The key is passing a controlling stake to the trust so it is possible to retain 49% of the business or, alternatively, arrange an MBO which would provide an initial capital event if needed.
An EOT gives employees a voice and they can provide input on the direction the business takes. This can increase commitment, productivity and performance of the individuals and ultimately the business.
From a business owners’ perspective, the culture is already established and likely to continue which cannot be guaranteed if sold to a third party. There will also be minimal disruption for your clients as they will still be dealing with the same firm and individuals within it. It is also an opportunity to reward loyal employees and recognise your staff’s contribution to the success of the business.
There are also a number of tax benefits making an EOT a very attractive way to transition your business. The sale of shares into the trust is done at full market value which is paid back to you through the ongoing profits of the business. These payments are exempt from capital gains tax, income and inheritance tax.
If you would like to know more about EOTs or any other aspect of succession planning please do get in touch with Dan Smith, Succession Manager, and he would be happy to help. Email succession planning.
1. Introduction
2. Transact Online (TOL) – Recent enhancements
3. Integrations – mini-events
4. Trusts – the new business process
5. Overseas fund regime
6. Successions planning update – employee ownership trusts
7. Transact – BlackRock MPS update from Ben Roberts (MPS Manager)
8. A study in gifting – too late to change after death?
9. Investment bonds – topping up verses new policy
10. Salary sacrifice – is change on the horizon?
11. Interest on cash
12. Transact events 2025