Sale of a business to an employee ownership trust
Produced in partnership with Karen Cooper and Jeremy Cavendish of Cooper Cavendish
Sale of a business to an employee ownership trust

The following Share Incentives practice note produced in partnership with Karen Cooper and Jeremy Cavendish of Cooper Cavendish provides comprehensive and up to date legal information covering:

  • Sale of a business to an employee ownership trust
  • What is an employee ownership trust
  • Popularity of employee ownership
  • Risks to the seller
  • Structure of a typical sale of a business to an EOT
  • Key sale and purchase transaction documents
  • Heads of terms
  • The sale and purchase agreement
  • The disclosure letter
  • Other key documentation
  • More...

Sale of a business to an employee ownership trust

What is an employee ownership trust

An employee ownership trust (EOT) is a particular type of employee benefit trust (EBT) that meets certain statutory criteria. The concept of an EOT was introduced under the Finance Act 2014 in conjunction with certain tax benefits that became available for companies that are owned by an EOT and for individuals who dispose of shares to an EOT. If the strict statutory criteria are not satisfied in relation to the EOT, then these tax reliefs will not be available.

For further more general details on EOTs and details of the legislative criteria EOTs must meet, see Practice Note: Employee ownership trusts.

EOTs can create an effective means of succession planning and an alternative to the more traditional or conventional exit routes, such as a third party trade sale or a management or private equity backed buy-out. However, while the potential tax reliefs available to individuals who dispose of a controlling interest to an EOT can be very appealing, transitioning to an EOT entity can be a seismic cultural shift for a business. The tax drivers need to be carefully balanced against the future financial security and longevity of the business, which in turn may impact on sellers' ability to realise the full value from their shareholding.

Popularity of employee ownership

The Employee Ownership Association notes

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