Selling a business held within an Employee Ownership Trust (EOT) involves unique considerations for ex-shareholders, the management team, and the board of trustees. At Bishopsgate, we provide expert advice on navigating this process, ensuring the best outcome for all stakeholders.
Bishopsgate’s team of experts have been through this process and can provide straight forward and experience led advice.
Why Sell an EOT-Owned Business?
While transitioning to an EOT can provide tax advantages, employee engagement, and long-term stability, there may come a time when selling the business becomes the best option. Common reasons include:
- Growth Limitations – The business may require external investment or strategic partnerships that an EOT structure cannot provide.
- Market Conditions – A favorable market or a strategic buyer offering an attractive premium may make it the right time to sell.
- Employee Buyout Challenges – The business might struggle with succession planning, leadership retention, or employee motivation to drive continued success as they will not experience any equity growth at Capital Gains Tax rates.
- Trustee or Management Team Preferences – Those overseeing the trust may feel that an external buyer is in the best interest of employees and the company’s long-term future.
- Financial Considerations – The company might need fresh capital or financial restructuring that is best facilitated through a sale or private equity investment.
Key questions Bishopsgate experts can answer:
- How do sell a business out of an EOT?
- What are the potential pitfalls of this process?
- Is the sale in the best interests of the beneficiaries?
- What are the tax and cultural implications of selling the business from an EOT?
- Who can you sell it to?
Key Considerations When Selling an EOT-Owned Business
What Are the Tax Implications of Selling an EOT?
Selling a company out of an EOT requires careful tax planning. While the original transition into an EOT benefits from tax advantages (such as CGT exemptions for the selling shareholders), a subsequent sale to an external buyer can have tax consequences for both the trust and employees. Key tax considerations include:
- Capital Gains Tax (CGT) Exposure – Depending on the timing and structure of the sale, CGT liabilities may arise for the trust or the employees if proceeds are distributed.
- Income Tax Considerations – If employees receive proceeds from the sale, potential income tax and National Insurance liabilities must be evaluated.
- Corporation Tax – The impact of a sale on the company’s tax liabilities, particularly if structured as an asset sale rather than a share sale.
What Are the Governance and Trustee Responsibilities?
EOTs are governed by a board of trustees, who have a fiduciary duty to act in the best interest of the employees. A sale requires:
- Trustee Approval – The trustees must ensure that a sale aligns with the trust deed and does not disadvantage employees.
- Employee Consultation – While employees do not directly control the sale, their interests must be represented, and clear communication is essential to maintaining morale and engagement.
- Regulatory and Legal Compliance – Ensuring the sale adheres to the legal framework governing EOTs and does not inadvertently breach trust agreements or employment laws.
How Will a Sale Impact Employees and Company Culture?
One of the potential benefits of an EOT is fostering employee engagement and shared ownership. However, this is no always the case and selling the business to a third party can help unlock future growth, pay off ex shareholders and provide management with future equity value. Key factors to consider include:
- Employee Incentives and Retention Plans – Ensuring key personnel remain engaged through the transition.
- Communication Strategy – Managing employee expectations and addressing concerns proactively.
- Integration with the New Owner – Evaluating how a new ownership structure will impact employees and whether they will still have a voice in the business.
How Can You Maximize the Value of the Business?
Selling an EOT-owned business requires a well-planned valuation strategy that considers:
- Market Conditions – Ensuring the business is sold at the right time to maximize value.
- Buyer Interest – Identifying strategic buyers who value the company’s long-term potential.
- Structure of the Deal – Whether it will be a share sale or an asset sale, and how deferred payments or earnouts may be structured to benefit all stakeholders.
EOT Team
James McBain Allan
Partner
Roger Shepherd
EOT Sale Specialist
If you’re considering selling a business within an EOT framework and seek expert guidance, contact us to discuss how we can help you achieve a successful transition.
