If you hope to retire in the future, having a succession plan in place at least three years in advance will put you in a much better position and will enable you to explore your options. You will want to consider all succession options and having experienced advisers to assist can ensure that you have taken all considerations into account, including all legal, financial and tax implications.
One option you might wish to consider when putting your succession plan in place is a sale to an employee ownership trust (an EOT). Employee ownership is an increasingly popular form of shareholder exit and should be considered if you are reluctant or unable to sell to a third-party buyer, you are concerned about the damage to the business’s legacy by exiting via the conventional routes and you see benefit in rewarding employees who have helped to grow the business.
A disposal to an EOT can involve a sale of all the shares or of a majority shareholding (>50%) to the trustee of the EOT which holds the shares for the benefit of all the employees in the business. This means that no employees hold shares in their own right but rather the trustee acts as the custodian of employee ownership for the benefit of all staff.
A financial advantage of a sale to an EOT for current shareholders is that the proceeds of sale would not be subject to capital gains tax. This is an important consideration, but the current growth in employee ownership is down to a combination of factors, including a desire to protect a business’s culture, a wish to incentivise employees and an understanding that employee ownership can lead to resilient and sustainable business performance.
Provided that the various qualifying conditions are satisfied, employees of companies which are majority owned by an EOT are entitled to income tax-free annual bonuses of up to £3,600 per year. Independent research clearly demonstrates that employee ownership is mutually beneficial for employees, the business and the wider economy.
Securing an exit to an EOT requires expert legal guidance to ensure that the deal is structured effectively. Brabners have a specialist employee ownership team who can guide you through the process and advise you on your succession journey.
Join us for EO Day 2021, a national celebration of employee ownership on June 25 2021, and shout about why business is #BetterTogether for the individual, the business and the economy.