Sounds Like An Employee Ownership Trust (EOT)

You might have seen recent news articles reporting that Julian Richer has sold 60% of his Richer Sounds audio equipment chain to an employee-owned trust. Mr Richer has said he plans to stay involved with the business but would leave the day-to-day running to the management board.

This move to employee ownership status was welcomed by Deb Oxley, chief executive of the Employee Ownership Association. “We’re delighted to see it secure its future independence with a focus on its people and an eye on the future world, a world with a more inclusive economy where more businesses are doing well while doing good,” she said.

This alternative form of exit/succession planning is gaining in popularity, and here’s why:

1. It allows employees to indirectly buy the company from its shareholders without them having to use their own funds - thereby creating an immediate purchaser and addressing succession issues
   
2. Shareholders can sell their shares for full market value (an independent valuation will be required)
   
3. No capital gains, income, or inheritance tax liabilities should arise on the disposal of a controlling interest in a company to an EOT (or on the subsequent receipt of the purchase price by the former shareholders)
   
4. Not all shareholders are required to sell their shares to the EOT
   
5. The directors can remain in situ post-disposal and can continue to receive market-competitive remuneration packages
   
6. The EOT is generally seen as a “friendlier purchaser” which means the sale process may be quicker, with potentially lower fees. 

As all employees get an indirect stake in the company, there are substantial practical benefits associated with being owned by an EOT, such as:

• Greater employee engagement and commitment
  
• Reduced absenteeism
  
• Greater drive for innovation
  
• Improved business performance. 

Companies controlled by EOTs are also able to pay tax-free cash bonuses to their employees of up to £3,600 per employee per year.

If this is something you would like to explore further for the future of your business, please don’t hesitate to get in touch.