Transitioning to an Employee Ownership Trust

Last year, our highly experienced corporate Partner, Marina MacLennan acted in relation to family business Parsons Bakery, which has shops in Bristol, Bath, Somerset and Gloucestershire, becoming one of the largest EOTs in the South West.

It’s a move that an increasing number of businesses are considering. The sector has more than doubled in size since 2020 with around 2,500 EOTs currently operating in the UK with at least 500 companies now choosing this option every year.

What is an Employee Ownership Trust?

It is a trust which is owned for the benefit of its employees. It can hold up to 100% of the company’s shares and acts as a legal entity overseeing the business on behalf of employees.

Famous longstanding examples include the John Lewis Partnership and food manufacturer, Tiptree Wilkin & Sons. More recently, Bristol’s Aardman Animations and Riverford Organic Farmers, famous for its boxed veg delivery service, became EOTs in 2018 and audio-visual equipment specialists, Richer Sounds, in 2019.

Funded by the company’s future profits, or via a deferred payment structure where the company pays the sellers over several years, there are many aspects to consider including employee share schemes, payment plans and tax implications.

This is why specialist legal advice is so important.

What are the benefits of an Employee Ownership Trust?

EOT’s offer several highly beneficial tax reliefs including:

• Giving business owners the opportunity to sell their shares to an EOT with reduced Capital Gains Tax payable, subject to qualifying conditions.
• Enabling a company owned by an EOT to pay each employee an annual bonus of up to £3,600 free from income tax (the Employee Ownership Association has called for this to be increased to £4,400 per annum).
• Providing relief from Inheritance Tax on certain transfers into and from an EOT.

Why choose to set up an EOT?

An EOT can be established by a company’s existing owners, perhaps as part of an exit or succession planning, in a way that allows culture and independence to be maintained.

The process can be quicker and less stressful than a third-party sale.

EOTs also tend to be popular with employees who feel more engaged and motivated as a result of having a direct stake in the company for which they work.

Get in touch

If your business is interested in establishing an EOT, Marina MacLennan can help.  Marina concentrates on advising the business owners on their own interests in selling to an EOT and has excellent links with other corporate entities who establish the trust structure.

Head of the team and an experienced corporate lawyer, she assists individuals, partnerships and companies, particularly Small and Medium-sized Enterprises (SMEs) with all aspects of corporate and commercial law.