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Succession Options

There are several options open to business owners considering an exit:

Sale to an Employee Ownership Trust

A move to employee ownership gives the company a stable ownership structure that allows shareholders to exit the company when they decide, allowing them to phase that exit offering
maximum continuity to the company, employees and customers.

In 2014, a specific shareholding vehicle was introduced: the Employee Ownership Trust (EOT). The EOT buys the shares from the shareholders and holds these shares in a Trust on behalf of the employees. If more than 50% of the shareholding is sold to the EOT, then the transaction can qualify for exemption from Capital Gains Tax subject to certain conditions being met.Briefly, the main conditions are as follows:

The company must be a trading company (or holding company of a trading company)

The EOT must be open for participation by all employees

Any distributions must be paid in line with criteria set out in legislation (equally or according to length of service, hours worked or salary)

Directors (and connected persons) must comprise fewer than 40% of total employees

A sale to an EOT is proving to be an increasingly popular succession option for business owners.

Research suggests that businesses with majority EOT ownership outperform conventionally structured firms on many metrics such as productivity, profitability, employee happiness and customer satisfaction.

Employee-owned companies can be found in just about every sector of the economy; manufacturing, construction, architecture, retail and space research, to name a few.

There are benefits for employees who work in companies where the majority shareholding is in an EOT.

The legislation allows for each employee to receive an annual bonus of which up to £3600 can be paid free of income tax.