An employee ownership trust (EOT) is when employees of the organisation hold a permanent or long-term shareholding in a company or trust that they work for, in order to benefit all the company’s employees. There are many benefits to EOT’s, such as the increased motivation and care from employees, as their results directly impact them and they can receive bonuses based on the business’s performance. This article will help explain and answer any questions that you may have about employee ownership trusts.
Are they difficult?
They don’t have to be. The sale of shares can be straightforward – a corporate trust is established to buy the company and then the sale can be refinanced and distributed amongst employees within the trust. An EOT is a tax-effective exit strategy, in comparison to management buy-outs or trade sales. Zero tax needs to be paid upon the restructuring, making this a preferred method of selling shares as no money is lost to the taxman. The technicality will depend on the history and culture within the business, however a good advisor will be able to navigate this for you. Research has shown that in the long term, these businesses are usually more successful than non EOT’s and therefore the tax break is encouraged for businesses to convert.
Are Employee Ownership Trust Sales Below Value
The value of a business is constantly changing, due to internal and external factors – from the appointment of a new CEO to an increase in competitors who are decreasing your business market share. The transition for a business to become employee-owned does not necessarily mean it will sell for a lower value than what it is worth, this is dependent on a variety of factors. If the sellers need funding, it will provide them with a larger buying power to pay a lower share price – as they may accept less for their shares.
Isn’t There More Paperwork and Less Agility?
Employee Ownership Trust and employee engagement may add to the information and data requirements, but these aspects are easy to manage if set up correctly from the start and the correct procedures are taken. The purpose is to create a business built around the needs of the people, and not the market itself – by taking care of the employees they will ultimately take care of the business.
Are EOT Sales Employee-led?
An Employee Ownership Trust does not require employees to guarantee payments or directly buy shares and invest money. This is the purpose of the trust, which acts on behalf of the employees to make decisions within their best interests. This process can take time to establish and get running, however, ultimately benefits all stakeholders once implemented.