Do you want to be in control of what happens next? If you are looking to sell your business and don’t know what path to take, selling to an Employee Ownership Trust (EOT) could be a credible option for you.
Employee Ownership Trusts are a business ownership model where a shareholder sells their stake in a business to a trust whose beneficiaries are the employees. This form of ‘indirect ownership’ can help mitigate issues stemming from joiners and leavers whilst enhancing employees’ connection to the company they work for. Research suggests this can lead to greater innovation, productivity and overall business performance.
An EOT can be more efficient to implement compared to some alternative routes but there are specific, important rules that must be followed. EOTs come with many pros to consider and have become an increasingly popular avenue since 2017.
Peter Wilmer, Corporate Finance Partner at Hawsons said:
“Over recent months there have been an increasing number of businesses transitioning to employee ownership. Various factors have prompted this but high-profile transactions such as Richer Sounds and increasing awareness have played a significant part.
“Whilst an employee ownership model might not be right for every business, it is certainly worthwhile exploring the benefits of this route when a business owner is contemplating a sale. At Hawsons we have an expert team who have implemented numerous employee ownership transitions and can guide and advise owners every step of the way.”
Hawsons recently became a member of the Employee Ownership Association (EOA), an association that offers a wide range of services to members revolving around employee ownership. The EOA has sought to grow the size and impact of the employee-owned sector for the past 40 years. Hawsons are proud to be a supporter member of the EOA and play a part in assisting this important area of the economy through membership, to ensure the firm remains at the forefront of developments in the sector.
Selling your business is typically a once in a lifetime event, with numerous options available, professional advice can be invaluable to help sure you take the right one.
Selling to an EOT can seem like the best option as it can come with a zero Capital Gains Tax advantage for the vendor and the potential to pay employee bonuses of up to £3,600 a year free from income tax. These, however, shouldn’t be the main reasons for taking the EOT path.
EOTs should be considered for the benefits to a business’s innovation and continuity. By handing over to employees who are already knowledgeable on the foundations of your business, the likelihood of it maintaining its culture and current success is higher.
Employee Ownership Trusts also allow you greater control over the process of selling and can help avoid you having to share commercially sensitive information with third parties. Employee Ownership Trust transactions are less intrusive, by selling to an EOT you’re dealing with current employees with whom you already have an established, more trusting, relationship. Therefore, exiting the business with them in control can help put your mind at ease.
If you’re concerned that the sale of your company to a third party won’t be a good cultural fit, an Employee Ownership Trust may be the best route for you, it allows you to tailor the needs of your company around the selling of your business.
Hawsons worked with a retailer in the jewellery industry, who felt the family atmosphere of the business could be better maintained after the founding shareholders sold by adopting an Employee Ownership Trust model.
Selling to an EOT allowed the business to continue as normal, in addition to giving employees the chance to play an even more active role in running the company, which in turn benefited the future of the business.
A year after making the transition to an EOT, the Managing Director was asked if he had any advice for those considering the move to Employee Ownership. He didn’t hesitate to answer:
“Do it! If possible, start the process earlier rather than later, this will make for a smoother transition and can avoid the need to seek outside financing along with the associated costs.”
If you are looking into exiting your business and don’t have a plan, Hawsons can help you evaluate all your options and consider whether an EOT would be of value to you. Email Peter Wilmer on pjw@hawsons.co.uk or call 01604 645600
