Employee Ownership Trusts
Keeping your workforce motivated and inspired is one of the biggest challenges facing many modern businesses, with the aftermath of Covid-19 making things more challenging.
Making your company employee owned, could assist in a number of areas including increased productivity, assistance with recruiting new employees and having a happier more motivated workforce. In addition, becoming employee owned can assist the existing owners to sell all or some of their shares for market value, as part of their exit or succession planning strategy.
What is Employee Ownership?
Employee ownership is normally achieved by setting up an employee ownership trust (EOT) which owns all or most of the shares in the company, on behalf of the employees.
This form of ownership is becoming increasingly popular as it enables companies to retain their independence, reward employees’ hard work and enable outgoing shareholders to receive full value for their company.
Importantly for many business owners, an EOT comes with two significant tax breaks:
• Owners selling their shares pay no capital gains tax and
• Employees can receive tax free bonuses of up to £3,600 p.a.
To obtain these tax advantages, an EOT must:
• Hold a controlling interest in the company
• Be established for the benefit of all employees (with the exclusion of individuals who own or have owned 5% of the shares) and
• Treat all employees on an equitable basis
How is it achieved ?
Following a valuation of the company and the establishment of an employee trust, the shareholders enter into a contact to sell their shares to the trustees of the EOT.
Funding for the transaction comes from the trading company, which makes a capital contribution from its reserves. It is usual for an element of the sales proceeds to be paid on completion with the balance being paid over a number of years out of future profits. In addition, it is possible for a company to borrow to fund a transaction although any payments are subject to the company having sufficient distributable reserves.
On a day-to-day basis the management of the company is unchanged, it is still run by the board of directors. However, most employee-owned companies would create some sort of staff forum to involve the employees and these representatives will feed into the trustees of the EOT who look after the interests of the employees.
"During the last four years, Hurst has assisted many owners in selling their companies to an EOT. Over this time, we have worked with a variety of different businesses in terms of industry sector, size and value. This experience makes us well placed to help you on your own journey to employee ownership."
How can HURST help?
At Hurst we have helped a significant number of companies on their journey to employee ownership. These companies have covered various industries including manufacturing, professional service companies, recruitment and the building sector. In fact, no industry is excluded from employee ownership, although this route is not necessarily right for all companies.