What exactly is Employee Ownership?

The concept of employee ownership isn’t a new one to businesses, but since the Finance Act 2014, it is a business structure that has been gaining momentum.

Employee ownership may take many forms, including setting up an Employee Benefit Trust (commonly known as an EBT) or setting up an Employee Ownership Trust (commonly known as an EOT).

An EBT is usually reserved for where you want to give some shares to your employees, but not necessarily a controlling interest.

To establish an EBT you set up a trust which can be used to hold a pool of shares for the Company’s employees. This can be a particularly useful mechanism to create an internal market or simply to hold shares, or other assets, as a benefit for employees.

An EOT, whilst similar in nature to an EBT, is more onerous as it involves transferring a controlling interest of the company to its employees.

This is not done through direct ownership by the individuals concerned, as this would undermine the company now being employee owned. Instead, a trust is set up which then holds the shares for the benefit of all of the employees and therefore establishes indirect ownership and allows for changes in the pool of employees.

There are currently various tax benefits in establishing an EOT, however, this does mean that there are strict requirements that need to be satisfied otherwise these benefits are forfeited.

In April 2023 the government announced that it was going to undertake a consultation on EOTs, therefore whether these benefits stay or requirements change remains to be seen. As it stands, however, employee ownership is certainly a favoured business model and can be a great option when it comes to succession planning.

We can answer any of your questions about business succession and exit, and even help guide the process for you if you do want to commit to setting up an EOT.  To know more about our services, contact us today on 0800 088 6004.