When business owners consider exiting their company, they face several options: sell to a trade buyer, bring in an investor, or transition to an Employee Ownership Trust (EOT). While all paths have their advantages, transitioning to an EOT presents unique benefits, especially for owners committed to their legacy, employees, and the long-term health of the business. Below, we explore why choosing an EOT may be the smart rxit option over traditional exits like trade sales or investor deals.
Assurance of Fair Value and Deal Completion
One of the standout advantages of selling to an EOT is the predictability it offers. Deals with trade buyers or investors can fall apart due to disagreements over terms or pricing, dragging out the process. By contrast, an EOT transaction is more straightforward, designed to transfer ownership to employees and proceed with minimal hurdles as long as key conditions—like the trust holding at least 51% of the company—are met.
Valuation is another key consideration. While market forces and buyer leverage can affect the sale price in a trade deal, EOT valuations are typically based on an independent assessment of the company’s financial health. This ensures that the owner receives fair value while securing the company’s sustainability for its new employee owners.
Protecting Legacy and Company Values
For many owners, a company represents more than financial value—it embodies years of work, a vision, and a culture they want to preserve. Selling to a trade buyer or investor may lead to changes in direction, restructuring, or layoffs that can erode the company’s original mission.
An EOT ensures the business's core values remain intact because employee-owners are more likely to uphold the company’s culture and long-term vision. This sense of continuity is appealing to owners who want to leave a legacy, knowing their employees and the business will be cared for after their departure.
Tax Benefits for Both Owners and Employees
Another compelling reason for choosing an EOT is the favourable tax treatment. In the UK, owners who sell at least 51% of their business to an EOT are exempt from paying capital gains tax (CGT) on the sale, offering a significant financial advantage over trade sales or investor deals, where the CGT could significantly reduce proceeds.
In addition, employees in an EOT structure benefit from tax-free bonuses up to £3,600 annually, creating a financial incentive that strengthens employee motivation and connection to the business's success. This tax-efficient arrangement makes the transition smoother for both the seller and employees.
Boosting Employee Engagement and Retention
Employee ownership dramatically improves engagement and loyalty. Employees who own a stake in the company feel more connected to its success, which translates to higher levels of productivity, innovation, and retention.
For owners who care about their employees' future, an EOT provides stability. Unlike a trade sale or private equity deal—where layoffs or restructuring are common—employee ownership promotes collaboration and long-term growth. Employees are less likely to leave, and their sense of shared ownership helps ensure the company’s continued success.
Minimizing Disruption to Business Operations
Trade sales and investor deals often bring significant changes, such as new management, operational restructuring, or job cuts. These changes can disrupt not only the company’s workforce but also its relationships with clients and partners.
An EOT helps avoid such upheavals by maintaining stability in leadership and operations. Employees who transition into ownership are already familiar with the company’s processes, ensuring a smoother transition with minimal disruptions. This continuity can be reassuring to both employees and clients, fostering long-term relationships and a smoother handover.
Flexible Exit Timeline
Unlike a traditional sale, which often requires the owner to step down immediately, transitioning to an EOT offers flexibility in the exit timeline. Owners can gradually reduce their involvement, staying on in an advisory or leadership role to guide employees through the transition. This phased approach ensures that the company remains in capable hands and that employees are prepared to take on more responsibility.
This flexibility contrasts sharply with the quick exit often required in a trade sale or investor deal, giving owners more control over their departure and ensuring that the company continues to thrive under its new employee-owners.
Safeguarding Jobs and Community Impact
For owners who prioritize their employees and the local community, an EOT ensures job security. Trade sales and investor deals often lead to job cuts, relocations, or changes that can negatively affect the local economy. By selling to an EOT, business owners can protect jobs and maintain the company’s role as a key employer in the community. Employee ownership also ensures that the company remains dedicated to its local roots, providing stability for both employees and the community.
A Balanced Exit Strategy
Exiting through an Employee Ownership Trust allows business owners to achieve a balanced and thoughtful transition. It offers certainty in terms of deal completion, fair value, and the preservation of the company’s legacy and values. The tax advantages and minimal disruption further enhance its appeal, while employee engagement and retention benefit from the sense of shared ownership.
For owners seeking more than just financial gain—those who care about their employees, their business’s future, and the community—an EOT offers a long-term, sustainable exit solution.
If you’re exploring succession options and want to know whether an EOT could be right for your business, now is the time to seek expert advice and begin planning a transition that aligns with your vision for the future. Contact Us to discuss further.
Comments