Employee ownership: what are my options?

She confirmed the company will always be owned by its employees, who have a stake in the business and the potential to receive a share of its profits.

Employee ownership can help businesses address two key issues: the retention of important, skilled staff and the recruitment of new talent.

Business owners might consider two distinct employee ownership routes.

Governments of all stripes have long supported employee ownership in its various forms.

A number of employee share ownership schemes allow some or all employees to acquire some equity in the business without owners giving away control.

These schemes mean employee shareholders can share in the future success of the business – encouraging them to act like owners, and share in the rewards.

Alternatively, selling the majority of shares to an employee ownership trust (EOT) can be an excellent exit route for owner managers, ensuring the business is sold to people they know and who share their passion for the company’s continued success.

Governments of all stripes have long supported employee ownership in its various forms. Evidence suggests that wider employee ownership can offer benefits to employees, businesses and the wider economy, including potentially delivering higher productivity and profitability.  

Exploring EOTs

An EOT is designed to encourage exiting owners to sell their business to their employees. Many business owners choose this route in preference over selling to a third party – and a sale to an EOT is entirely free of capital gains tax.  

A sale to an EOT can be a compelling choice for business owners wanting to exit:

• no third-party negotiations makes for a simpler, quicker sale process – with associated cost-savings;
• minimal disruption to the business post-transaction;
• sale is free of CGT;
• owners can exit according to their timescale. 

After the transaction, the EOT trust will be the majority shareholder, but it delegates responsibility for running the business to the directors.

Thus the management structure may not change significantly, unless the existing owner has committed to changing the board as part of their succession strategy.  

Tax benefits enhance the appeal

Owners who sell a controlling stake in their company to an EOT will receive 100 per cent relief against CGT, regardless of the size of the business. 

Employees of EOT-controlled companies can receive income tax-free bonuses up to £3,600 (per employee) annually – although national insurance contributions still apply to such bonus payments. 

A sale to an EOT can be a compelling choice for business owners wanting to exit.