Employee Ownership: A Complete Guide

Download Employee Ownership: A Complete Guide

Are you a business owner looking to realise cash from your business? Then this guide is for you.

This guide looks at the benefits for you and your business and how to transition from owner control to an Employee Ownership Trust.

Just some of the topics covered include:

❖  What exactly is an Employee Ownership Trust

❖  How does an EOT work?

❖  Why should you consider an EOT?

❖  Is EOT right for your business?

❖  How does Employee Ownership compare with other succession options?

❖  What is required to transition to EOT?

❖  Preparing your business and transitioning to new management

❖  Your EOT Transition Team

❖  Your Next Steps

Download the guide now and find out if Employee Ownership is right for your business.

Employee Ownership – A new option for owners

Are you an owner-manager looking to realise cash from your business, then an Employee Ownership Trust is an option you should consider. This brochure looks at the benefits for you and your business and how to transition from owner control to Employee Ownership Trust.

What is an Employee Ownership Trust

An Employee Ownership Trust is a way for business to be owned by its employees. An Employee Ownership Trust can be set up by the company’s current owners can be used:

    • As an exit plan
    • As a way to plan for succession
    • Or it can be used as the model set up a business from the outset

The Employee Ownership Trust is a business ownership structure which was set up under the Finance Act 2014 to encourage companies to become employee-owned.

The EOT must own more than 50% of the company’s shares once set up all employees must receive all the benefits from the EOT of the same terms.

EOTs provide two major tax benefits:

    • The existing owner can sell their equity without any capital gains tax liability.
    • And once set-up the EOT can pay annual bonuses to employee free of income tax.

How does an EOT work?

Typically, the EOT will acquire a controlling interest form the existing owners. The price will usually be agreed based on an independent valuation. The price cannot exceed the market value for the assets.

Payments to the previous owners are made (usually) in instalments.

The EOT will be run by the Trustees. However, the EOT does not manage the business. This will be the responsibility of the internal management team. The EOT will oversee the company to ensure it operates efficiently in the interests of its employees.

Why consider an EOT?

For the owner of a business who wishes to retire and would usually engage in a trade sale, an EOT is a good alternative option. It places the business in the hands of the people who have been working in the company and understand how it works and what it stands for. They will be motivated and keen to see the business continue to thrive.

Benefits for you as the business owner

    • You will receive the market value for selling your shares
    • You will be involved in building a new leadership team
    • No need to pay any capital gains tax.
    • You can implement it at a pace that will meet your needs

Benefits for your Employees

    • Income tax free bonuses
    • You employees will be highly engaged and committed.
    • It will create a sense of shared purpose across the business

Benefits for your Company

    • A leadership team that understand the business and its values
    • Minimal disruption to the business from the changes in management
    • Commits all parties to the long-term future of the business
    • The business will be stronger and more resilient.

How do I know if an EOT is right for my business?

Employee ownership offers many advantages, but it is not appropriate in every case. Its suitability depends upon your priorities, for example:

    • You are looking to exit from the business, but you are keen to take care of your employees and leave a legacy of a strong company.
    • You are looking for an alternative to a trade sale or management buy-out.
    • You are currently fully involved in the management of the business and existing succession option of not look achievable.
    • You don’t need your equity value immediately and have time to implement a planned transition.
    • You are confident that the business can deliver a reliable and growing profit stream.

Boardroom Advisors, working with our legal partners Stephens Scown, will take time to understand your aspirations and business circumstances; and help you decide whether employee ownership is suitable for you, and if so, which structure is best suited to your situation.

How does Employee Ownership compare with other succession options?

What is required to transition to EOT?

Four key areas need to be addressed to prepare for your EOT.

    • Preparing your business
    • Financial & Legal preparation
    • Communicating and engagement
    • Transitioning to new management

Preparing your business

Most business owner-managers are deeply involved in their businesses: they understand all aspects of their business, they are involved with every significant decision, and they are the glue that holds the business together. An employee-owned business needs to be successful with the owner-manager moving to a non-Exec role – or absent altogether. Preparing the business thoroughly for this change is critical for success.

Boardroom Advisors helps you identify and execute the changes needed to allow the business to be successful once you step away.

The first and most important task is to understand where your business stands right now. We will run diagnostic sessions where we identify your current readiness and agree with you the changes that need to be enacted before the transition to employee ownership.

We typically focus on:

Organisation, people and culture

Does the business have a clear sense of mission and a vision that is shared throughout the organisation? Does the organisation have a shared sense of values that are understood both inside and outside the business? Are objective-setting, appraisals, and pay policies well-defined? The culture of an organisation are often powerful ingredients in business success – yet they are also often implicit and deeply rooted in the style and personality of an owner-manager.

Financial processes

Do you have robust processes in place for cash control, the annual budget cycle and measuring monthly performance against plan, and clear delegated authorities and approval processes? Existing processes are sometimes too informal and rely heavily on your experience and involvement as owner-manager.

Senior leadership and talent

Is there a clear successor to lead the business, and where do their skills need to developed before taking control? How will the senior team reorganise, and are there talent gaps which need to be filled? Are the roles and responsibilities of your senior team well defined, to help prevent turf wars or confusion as the new leader steps up? We help you map your senior talent, and the structure of your new senior team, and identify any changes in the team that are needed in advance of the move to employee ownership.


There may also be opportunities to set the business up for success through operational improvement. This is often best done before the hiatus caused by the change of control. For example, are you making effective use of your data, in management information and analytics? Could you use IT to further improve productivity? Do you have robust quality assurance processes? Do you have actionable business continuity plans to cope with the unexpected?

Financial & Legal preparation

We will work with our partners Stephen Scown and with your accountants to help you define and establish the necessary legal changes, and to finalise the financial terms of the deal. While the legal and tax experts will take the lead in much of this work, our role is to ensure that the various strands of work are consistent and conform to your ambitions for the business.

The work required includes:

Financial modelling and valuation: deciding the price to be paid for the business and the payment schedule and ensuring that the assumed stream of future profits is realistic.

Tax planning. For existing shareholders, this involves different mechanisms to reduce capital gains liability. For employees, this could involve placing shares within SIPs or SAYE schemes, for direct share ownership models. For the Employee Ownership trust, capital gains or income tax liability may be minimised by being based offshore or use of gifting rather than dividends.

Putting in place new legal and governance structures. For example, the Employee Ownership Trust needs to be defined, established and appointed. Approval of existing shareholders will be formally required, and changes to your Articles of Association will need to be approved. Governance structures, such as a remuneration committee to decide upon senior pay, will need to be constituted.

Communicating and engagement

As for any major announcement, the tone, professionalism and sequencing of communications are critical to securing people’s buy-in when you reveal your plans to staff.

Boardroom Advisors helps you develop the communications plan, from the point that only you know your plans, through to announcement. We can help plan the sequence of communications, draft announcements and supporting material, and ensure you are properly prepared for announcement day.

Transitioning to new management

The period immediately following a move to employee ownership is challenging, however thorough the preparations. A new business leader will be establishing themselves, new governance structures bedding in, and the senior team is typically reorganised.

Boardroom Advisors will tailor support in this period according to your business’s specific needs. This could include:

    • Interim management where there are any gaps in your senior team resulting from the changes, that you have not yet filled.
    • Coaching the CEO or members of the senior team as they embark on their new roles.
    • Support with the governance process – helping management and the board as they put into play the new board processes. For example, this could include support with management information packs or board processes.
    • Board support: providing NEDs to bolster the board’s expertise in specific areas.

The Boardroom Advisors process

Is employee ownership right for your business?

There are different types of employee ownership to consider. Direct share ownership transfers shares directly to some or all employees. Indirect share ownership places shares into a trust, benefiting employees only while they remain with the company. Some companies opt for a hybrid of these models.

On-going support

As your business settles to the new business-as-usual, we will identify with you how Boardroom Advisors can help with any on-going requirements.

For example, we can provide a non-Executive board member to strengthen your board. These individuals help ensure your board is accountable. They help the senior team manage strategy and performance and provide insights into potential issues that could affect the business, and suggest solutions that may not be apparent. They ensure that stakeholders are being served, that the organisation is being fiscally responsible, and that appropriate controls are in place.

Your EOT Transition Team

Boardroom Advisors are a team of real-world advisors with a huge breadth of skills and experience in all aspects of leading and managing a business. We are able to ensure that you have the right support to meet your specific business challenges.

Boardroom Advisors provides you with guidance, strategy and coaching. We specialise in working with family businesses and SMEs and have the skills and expertise to transition your business to employee ownership (EO).

Boardroom Advisors will be part of your team with a talented pool consisting of dozens of the most experienced advisors in the UK and our services cost only a fraction of a full-time hire. We will work with you to:

    • Analyse your business and create a detailed programme to ensure success throughout the EO process and beyond.
    • Deliver workshops to help companies to create the foundations for a successful EO scheme. These include, values & purpose, customer value proposition, stakeholder engagement, customer journey mapping, strategy execution and KPI development.
    • Support your team to deliver the EO scheme at a pace that matches the needs of your business. Helping you to manage all the stakeholders and communicate the EO scheme to employees.

Working with the various specialisms within the Boardroom Advisor network, we will help you design any changes in each of these areas, in a way that suits your business. We will design with you a plan to put in place these changes, and help you execute them smoothly and with minimum disruption to your business.

Stephen Scown our Legal Partners

Being the first large law firm in the UK to become Employee Owned and full members of the Employee Ownership Association, we understand firsthand what it takes to make a successful EO transition. We learnt a few lessons on the way as well and are very happy to share the lessons that we have learned and those that we have learned from companies that we have worked with or met in the EO sector.

At any one time, we are working with over 30 companies from law firms to tech business who are either on their way or just starting to explore a potential EO transition, either as a growth strategy or as a more appealing succession plan.

We believe that EO has an important part to play in the future shape of business and it’s our intention to provide the best support to companies taking that journey.

Your Next Step

If you are interested in learning more about whether an Employee Ownership Trust is right for your business, please contact us today