An EOT, or an employee-owned trust, is a company structure that means employees benefit from the success of the business. While employees aren’t involved in decisions and don’t own shares like employee-owned businesses, there are still many benefits for both staff and company owners.
There is a lot to consider if you want to set up an EOT or change your current company structure to this one, as we at CRO did. From the benefits available to staff to the tax considerations, we are here to provide you with everything you need to know about this company structure and how to switch to an EOT with ease.
What Is an EOT?
An EOT cannot be confused with an employee-owned business. In this structure, all employees must have a ‘significant and meaningful’ stake in a business, both financially and through engagement.
Financial stakes mean owning shares through schemes. Because of this, it is often easier for companies limited by shares, such as public limited companies, to change their structure to an EOT.
Employee engagement means that staff have a significant say in how the company is run. For example, this could be done through a council, having employee directors on the board, or being part of a trade union.
However, EOTs are slightly different; they are controlled by an employee ownership trust, giving owners the opportunity to sell shares free from CGT (capital gains tax). While employees do not have direct ownership, the EOT holds the shares on behalf of the employees for their benefit.
What Are the Benefits of Employee-Owned Trusts?
When considering your company formation, it is important to weigh up the benefits of various business structures. With that in mind, here are some of the advantages of EOTs for the company, the employees, and even your clients or customers.
- Staff are much more motivated and engaged in EOTs, which translates to reduced absences and staff turnover and an increase in productivity and, therefore, profitability.
- Goals are aligned between staff and stakeholders, which helps provide a clear success and growth path for the business, where everyone is involved.
- EOTs are often sustainable and successful businesses. Appearing as a successful business in your industry is excellent for brand identity and makes recruitment and working with other companies much easier, as you are a trusted name in your sector.
- When involved in the company, employees feel more valued, motivated, and engaged because they care about the company and its success.
These benefits also translate into advantages for both clients and customers. When a business is productive, it means everyone involved is working hard and, therefore, doing their best to provide customers or clients with a high-quality service. Similarly, as mentioned, EOTs are often seen as successful businesses due to their high productivity and satisfied employees, which makes them stand out in a sea of competitors.
Employee Ownership FAQs
Along with the advantages of this company type, there are many other factors to consider before you decide if it is the right choice for your business. Here are some of the most common questions asked about EOTs and our answers directly from our expert team.
What are the legal considerations of employee-ownership trusts?
Like any other company structure, businesses must comply with the tax obligations, employment regulations, and corporate governance of EOTs. For example, employee-ownership trusts create two tax breaks, which are:
- If shares are sold, they are free of CGT (capital gains tax).
- EOTs have the option to pay yearly bonuses to employees.
To benefit from these tax breaks, the EOT must hold more than 50% of its company shares, and, as mentioned, the employees must be given the same or similar terms.
How do EOT structures help business owners wanting to exit?
EOTs are desirable for business owners who want an exit route out of their company. Switching to an employee-ownership trust means that, for the most part, it is business as usual for everyone involved, minimising disruptions and providing their employees with some attractive incentives.
Are there any downsides to EOTs?
Of course, not every company structure is for every business, and an EOT does have some downsides that might make you sway away from this idea. For example, as a business owner selling your company to become an EOT, you could potentially wait years for proceeds, which can be frustrating and leave you waiting before you have the funds to move on to your next venture.
How can I set up my company through an employee-owned trust?
If the security and stability of an employee-owned trust are something you would like to implement in your own business, we can help. As leading providers of company registration online and as an EOT ourselves, we have the experience, knowledge, and understanding to get you set up and legally compliant. The process is not too dissimilar from other structural changes, but we can work together to ensure you get what you need.
CRO: An EOT
In 2023, CRO became an employee-owned business, and since then, we have had outstanding success. In recent months, we have expanded our office building, hired new staff members, and have seen an influx of professionals choosing CRO as opposed to competitors.
After 30 years in business, we decided to make the move to an employee-owned trust to reward our hardworking CRO team, provide them with the benefits we detailed earlier, and keep stability and sustainability consistent for everyone involved with CRO. This transition was smooth, the future of our company is protected, and as mentioned, we have had great success since becoming employee-owned, proving that this is an excellent choice for those wanting to make the change.
If you are interested in becoming an EOT, or you have any questions about CRO’s journey to an EOT, please do not hesitate to get in touch, and our team will be more than happy to assist you.
