Employee ownership trusts

Key points

• An EOT represents an alternative exit strategy to the traditional disposal to an external investor.
• The internal culture and independence of a company can be preserved through an EOT.
• This exit mechanism can result in significant tax savings for vendor shareholders and the remaining employees.
• Various qualifying conditions must be met by the selling owner(s) and the newly created EOT.
• After the disposal transaction additional care is required to ensure that a disqualifying event does not arise which could result in undesired tax consequences.

Following legislation introduced in September 2014 (FA 2014 s 290 and Sch 37) to promote employee-owned corporate structures the concept of an employee ownership trust (EOT) was born. This ownership model provides entrepreneurs with an alternative exit route and an opportunity for succession planning which involves transferring control of the business for the long-term benefit of employees in a tax-efficient manner....