Employee ownership is on the rise; an Employee Ownership Trust (EOT) can be a mutually beneficial structure for both business owners and employees and provide an attractive option for owners looking for an exit strategy. At Bessler Hendrie, we can help you to decide if it is right for you and then help you through the process.
We recently helped London Camera Exchange (LCE) move to employee ownership through an EOT, after 65 years as a family business.
What is an EOT?
An EOT is a trust established to hold the shares of a trading company for the benefit of its employees. For exiting shareholders there are valuable capital gains tax reliefs provided certain conditions are met.
What do we mean by valuable? At present, no capital gains tax, income tax or inheritance tax is payable on the disposal to the EOT. An EOT also provides a ready-made buyer for a seller’s shares with the additional comfort of knowing that the business will be left in good hands.
These benefits are available even if the seller retains some of their shares and has continuing involvement in the business, provided the EOT acquires a controlling interest.
Is it too good to be true?
It really isn’t. A common misconception for a sale to an EOT is that the owners are giving their shares away. But the shares can be sold for full market value. Also, it is generally accepted that employee ownership improves the performance of existing staff members and helps to attract new staff, improving the business as a whole.
Is it difficult?
There is a lot to think about in order to get it right, with a number of technical requirements and hoops to jump through. Here at Bessler Hendrie, we have the capabilities to help guide our clients through the processes involved, providing consistency and clarity along the way.
With LCE, we didn’t start with an EOT, we were asked by our client to help them to come up with an exit strategy, with a key requirement that it should benefit the employees of the business. But, once it was decided that an EOT was the best option, we worked closely with our client and their other advisers to ensure a successful implementation.
Matthew Oliver, the client Partner, summed up his role as “My job was to guide the board through the process, acting as the link between the directors, staff, lawyers and valuers, and to deal with any hurdles as they arose to ensure we could overcome the practical challenges which this unique transaction presented. The Bessler Hendrie way of working meant that we could help in all areas, including project management, bookkeeping, accounting, corporate tax and personal tax, to make the experience as pain free as possible for all involved.”
But it’s not just about saving tax. It is vitally important to think about how the business will be run after the sale and equally important to ensure there is effective communication with the staff. For LCE, it was imperative that the business would continue to thrive under the new structure. Outgoing owner Steve Hall commented “While the business is breaking direct links with the family of its founders, we are essentially moving to the ownership of the broader London Camera Exchange family. My father was a great believer in people, and this is something that he would have wanted. I am pleased to be able to pass over the business to its loyal employee family in such great shape.”
Nick Richens, CEO, explains “When our business owner first asked me to explore how he might exit and get LCE into the hands of its employees I automatically turned to our advisers at Bessler Hendrie for guidance. Matt Oliver stepped up to the plate and helped us evaluate the various employee ownership options available to us. Matt helped us to find specialist legal advice and business valuers and when the process was properly under way, Matt and his colleagues were on hand to expertly guide us through the process, culminating in happy parties all round. The upshot is that the business continues with most of the same people in key positions and without a mountain of debt, the outgoing owner has achieved a satisfactory exit without incurring big tax liabilities and the employee owners are more engaged in a thriving business with the prospect of tax-free bonuses to look forward to. Bessler Hendrie’s involvement was pivotal to the success of the whole exercise and has cemented an even stronger ongoing relationship.”
Is it right for my business?
If you are planning an exit, then an EOT is definitely something to consider. It might not be right for you, or it may not work for your business, but with the possible advantages it could very well be one of the options on the table. Why not call us for a chat about how we can help you or your clients?