FINANCE
By Jack Clipsham, Corporate Finance Partner, Kreston Reeves
Should business owners sell to an Employee Ownership Trust? Business owners who sell to an Employee Ownership Trust (EOT) can, amongst other benefits, avoid capital gains tax liabilities and reward staff at the same time. But it will not be the right option for every business and needs careful planning and consideration, says Jack Clipsham. Plans that were put on hold in 2020 and early 2021 to retire, pass on the business to the next generation, sell to a third party or to a management team are now moving at pace. The M&A market is once again very active. There is much for a business owner to consider when looking to sell a business. Some will simply want to achieve the highest price possible, to leave a legacy, or to do the best thing for their business and the people it employs to continue to see it grow. Whatever the driver, a successful exit will be supported with a clear roadmap and the right team of advisers to ensure the best possible outcome is achieved. One possible exit route, and one that is gaining growing attention, is a sale to an Employee Ownership Trust, or EOT.
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Our own research, published in the Shaping your future report, suggests that EOTs are used by 26% of businesses to motivate and reward staff. But is this an exit route that business owners should be considering?
WHAT IS AN EOT?
An EOT is, as the name suggests, a trust that enables a company to be owned by its employees. To qualify, at least 51% of the business must be sold to its employees. It is not a new concept, having been first introduced in 2014, and includes John Lewis Partnership, Richer Sounds, Arup and Mott McDonald in their number. The devil is in the detail and other conditions apply.
Plans that were put ❛❛ on hold in 2020 and
early 2021 to retire, pass on the business to the next generation, sell to a third party or to a management team are now moving at pace ❜❜
EOT BENEFITS
There are many benefits from a sale to an EOT, including the relative certainty offered by a sale to an EOT management team with deals less likely to collapse at the eleventh hour, the advantage of not having to share confidential information with third par ties and potential competitors, and partial exits where the owner is not quite ready to completely walk away. Yet it is probably the ability to reduce capital gains tax (CGT) liabilities that remains the biggest draw. Whilst the tax position is rarely the primary driver for a business owner to sell, it is always an impor tant
