Employee ownership trusts

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. The former owners receive value for the shares they transfer normally with an element of deferred consideration while preserving the independence of the business after their departure. This can protect the employees who helped build the business from some of the challenges that so often follow a change of ownership.

This type of exit may not suit business owners looking for a quick sale to an external investor in exchange for consideration payable on completion or shortly after the disposal date; rather it is aimed...