Business owners are increasingly looking at employee ownership as an option for exiting or partially exiting their organisation, with a 31% increase in 2021, and demand in 2022 growing again.
Selling the majority shareholding of the business is proving a popular way to realise financial security for the owner with notable tax advantages for exiting shareholders, including full relief against capital gains tax. It is also considered a rewarding and incentivising scheme for the employees of the company.
The Employee Ownership Trust (EOT) structure means a majority stake in the equity of the company will be held on trust for the benefit of the employees. Via a committee, the Employee Trust then has opportunities to become involved in the decision making of the business, helping to develop its future strategy and direction.
What are the benefits of an EOT?
With growing numbers of businesses opting for an EOT structure, the benefits of this transition are evident; with combined sales of the top 50 employee-owned businesses totalling £21.1b, up 6.7% on a like-for-like basis.
A notable attraction of an EOT are the beneficial tax reliefs associated. Firstly, the selling shareholder(s) will be able to attract a full exemption from capital gains tax on the disposal of the shares, unlike any other form of sale. Secondly, employees are able to receive an annual bonus of up to £3,600 that is free from employment income tax.
A further advantage of an EOT is that the future growth of the company and its business will be for the long-term benefit of the employees. As the structure increases employee engagement, leading to greater fulfilment and reduced stress amongst staff, employee-owned businesses are able to achieve higher levels of productivity and innovation and become more resilient to economic turbulence.
The business owners have peace of mind knowing their venture will be left in the hands of those who have a comprehensive understanding of the business and have the right expertise to carry it forward.
With no need for an external or third-party acquirer, an EOT can provide a smoother and speedier process compared to other types of business sales. This structure can also be used to plan a partial exit, while keeping the option of a full exit at a later stage.
Is employee ownership right for my business?
If you wish to see your employees benefit from future growth while the business’ structure remains largely unchanged, then an EOT could be the sale strategy for you. The partial exit, via an EOT, can provide financial security for the existing shareholder(s), as well as remove the potential time considerations involved with finding a third-party buyer. The directors can continue as they did pre-EOT, even though the shareholding changes.
Employees at leading training provider Educ8 recently acquired a majority stake in the company, in a deal advised on by the GS Verde Group. Together the employees now own 51% of the business.
For CEO Grant Santos, who will share more insights at GS Verde’s upcoming webinar, the implementation of the EOT is a natural transition for Educ8, having long identified employee engagement and exemplary communication as key to the business’ success.
When planning an exit strategy, businesses will need legal, financial and tax support to advise on the best sales structure and manage the transaction. At the GS Verde Group, we can help with the whole process.
Find out more about the benefits of Employee Ownership and whether it could be the right option for you and your business in our FREE EOT guide.