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Employee Ownership Trusts (EOT). What are they and why should you consider one? - YouTube
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hello i'm chris davis one of the
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partners at ross brook chartered
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accountants
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we look after the accountancy and
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taxation affairs of businesses and
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individuals from our offices
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in newbury abingdon swindling and
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huntford
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and today i'd like to talk to you about
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employee ownership trusts
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or eots as they're often known
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imagine the situation where a business
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owner has built a successful business
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and is now looking to exit he may have
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no children or his children are not
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interested in taking over the business
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he's probably built up a successful team
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behind him but they do not have the
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finance to buy his shares
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so he may well be looking for a sale to
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a third party
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perhaps one of the customers or
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competitors
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it's unlikely that that third party will
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place the same valuation on the shares
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as he does
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and as negotiations proceed matters may
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become
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stressful fractious unpleasant and not
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say least costly in addition
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if you are dealing with competitors or
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customers
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you may be concerned about them gaining
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valuable information
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about your business if the sale goes
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through
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there may be an element of deferred
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consideration and if the new owners make
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a hash of running the business there's
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no guarantee that you'll get the full
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amount that you expect
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it may be that the staff have concerns
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about the new owners
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they may not be able to work with them
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or they may be eased out
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and that's often a concern to a business
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owner who's built that team over a
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number of years and regards them as
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friends
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so what could be the solution well
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perhaps an employee ownership trust
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an eot this is a trust set up for the
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benefit of the employees
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very much in the john lewis model it's a
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trust managed by
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trustees which is often in this case a
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corporate trustee
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and sitting on that board of a corporate
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trustee
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might be the business owner and some
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representatives of the employees
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the first step is that an independent
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valuation of the company is performed
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and that's often done by the company's
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accountants
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after that the company's accountants
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will probably apply to hmrc for tax
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clearance
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to make sure the revenue are happy that
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this is being done for
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legitimate purposes
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then the solicitors are appointed and
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they would prepare the trustee
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and the share purchase agreement if as a
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result
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of the transaction the trust has more
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than 50 percent
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of the shares in the company then the
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sale of the shares
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by the business owner to the trust is
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entirely
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tax-free so
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of course the the trust doesn't have any
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money so how is it going to pay
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the business owner well let's imagine
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the scenario where the
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shares are brought by the trust for a
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million pounds it's likely that the
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company will have some money in the bank
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account
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and make it can make a contribution to
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the trust
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of perhaps say five hundred thousand
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pounds that leaves five hundred thousand
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pounds outstanding
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but can then be paid to the business
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owner
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at say one hundred thousand pounds per
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year over the next five years
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as the company makes those profits and
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passes them down to the eot
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so what are the advantages well it's
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certainly less stressful and you're
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dealing with known parties
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there's no loss of confidentiality and
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the business owner can continue working
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in the business
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to exert some influence over how the
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business is run
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staff jobs are secure and provided the
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50
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test is met the proceeds are entirely
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tax-free
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from the employees perspective they're
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now masters of their own destiny
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and they are empowered it has been shown
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that
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companies owned by their employees
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outperform those
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that are not in addition employees can
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receive
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an annual bonus based on length of
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service
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hours worked and remuneration of which
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the first 3
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600 pounds per year is entirely tax free
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so two questions i'm often asked firstly
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what's the catch
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well to be honest there isn't one it's
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it's a great scheme
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secondly why hasn't my accountant
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mentioned this to me
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well that's a very good question because
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it does seem to be a lot of lack of
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knowledge in this area
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the top 50 eot owned companies
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have a combined turnover of 20 billion
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pounds and employ over 160 000 staff
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so this is big business we have already
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completed
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quite a few of these and have more in
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the pipeline
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the ones that we have completed the
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business owners have said they'd be very
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happy to speak to
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other clients of ours about how the deal
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was structured
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how how easy it was and what the outcome
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has been
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afterwards so if you would like to speak
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to us
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find out more information do please get
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in touch
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you
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