Gemma Dobson
20 June '23

5 minute read

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Costs continue to rise; inflation, energy costs and pay rise expectations. Everyone is keeping a close eye on cash flow.

Despite these challenges companies still need to attract, engage and retain key team members. Finding innovative ways to do this is becoming ever more important as we navigate our businesses through these times.

Entrepreneurial business owners have been looking at pioneering and creative ways to address the challenge of staff retention in a more engaging way than just sticking a pool table in the cafeteria.

Likewise, company shareholders continue to search for tax efficient and employee friendly ways to crystalise the value they have built in their businesses.

Right now, one area of particular interest that ticks boxes for both shareholders and employees alike is the setting up of an Employee Ownership Trust (EOT).

An EOT lets you sell your business to your employees, with 0% tax for shareholders and £3,600 annual income tax free bonuses for employees.

Sounds good, right? Here’s the finer detail:

WHAT’S AN Employee Ownership Trust?

An EOT is a structure in which the shareholders of a company sell a controlling interest of their business to a trust that is established for the benefit of the entire employee base.

Effectively giving employees ownership of the company, without them physically owning the shares personally.


Your employees will be more incentivised as they will be able to share in the future profits on the business, typically once the shareholders have been paid for their shares.

Experience shows that employees feel more invested in the business, demonstrated to increase levels of engagement and productivity. Whilst also creating a stronger sense of community among employees, as well as improved collaboration.

As an added bonus for employees, the first £3,600 of EOT bonuses they receive each year is income tax free. This can lead to a substantial tax saving when considered across the entire employee base.


Commercially, EOTs provide an employee friendly and tax effective solution to the question of how shareholders can realise the value they have built in their companies. It is an interesting alternative to management buy outs, private equity and trade sales.

In respect of being a tax effective solution, when you sell your shares to an EOT, you can benefit from a 0% rate of capital gains tax, opposed to the standard rate of 20%.

Furthermore, shareholders can continue to work and maintain a shareholding in the business should they wish. Meaning they can continue to receive their salary and share in the company profits alongside the employees.


At Cooper Parry, we’ve already been working with a number of business owners to guide them through the switch to an Employee Ownership Trust. We’ve gained a deep understanding of what works and what doesn’t. For example:

1) Firstly, whilst all EOTs share similarities with their structure they are by no means ‘one-size-fits-all’. Consideration needs to be given around a number of areas to ensure no surprises after the transaction:

  • What percentage of shares will be acquired by the EOT?
  • How will the EOT pay for the shares, future profits or borrowing?
  • How will future profits be shared amongst employees?
  • Will the company board members be changed?
  • Who will be the trustees (decision makers) for the EOT?
  • Will the company operate an employee council to allow employee to vote on shareholder matters?

2) It is vital that management are bought into the structure. Whilst EOTs are great at incentivising the wider employee base, care needs to be taken to ensure management are adequately incentivised. This is due to it not being intended that a future sale will take place that they can participate in. Will they be happy with just sharing in future profits? Do you need to consider additional incentives for certain key team members?

3) EOTs are not designed as a temporary solution, they are designed to be long standing. Unravelling an EOT can be an arduous exercise and tax inefficient. As such, it is important to ensure this is the right option before proceeding.

As you can see from the benefits and considerations highlighted above, EOT’s can be an effective solution for shareholders and employees alike. However, thought needs to be given to ensure an EOT is the right fit for the shareholders, the business, senior management and employees.

For every company we have helped transition to employee ownership, there are several more we have helped conclude that an alternative structure may be a better fit. As such, you can be sure we will tell you straight if we don’t think it works for you.


We start with a discussion (normally over a cup of tea or coffee). We build an understanding of what your plans are for the medium and long-term, both as a business and as shareholders.

Yes, we kick the tyres and spend a fair amount of time talking things through with you, but our discussion will have purpose and value. From here we can begin to build a map of your journey and the options available to you.