Exit strategies – Employee Ownership Trusts

If you are looking to sell the shares in the company that you have built, the usual methods of exit that are considered are a trade sale, a Management Buyout (MBO) or possibly a transfer to family members. One other method of realising value, which has been available since 2014, is to sell to an Employee Ownership Trust.  This is often a very good option to consider where you genuinely care about what will happen to your business and the staff.

When an Employment Ownership Trust owns all or some of the shares in a company, the employees effectively own a stake in the company and are “shareholders” via an indirect holding through the trust.  The documentation could be drafted so that they could have a say in how the business gets run.  In addition, you, as the seller, can influence the underlying principles by which the company should be run going forward allowing your values to be carried forward.  David Smellie, partner in B P Collins’ corporate and commercial practice, outlines why they could be an attractive choice for some business owners.

Why would a business owner choose an employee ownership model?

1. It can be appealing from a tax perspective, as payments to a former business owner from Employment Ownership Trusts can be tax free and payments to the employees could also be paid free of income tax.
2. Employee Ownership Trusts encourage the retention of staff, better recruitment, higher employee engagement and more job satisfaction.
3. The business owner can be in control about when they choose to exit by establishing a trust at a time of their choosing.  It means the owner doesn’t have to wait around for a buyer.
4. The company can be valued fairly and independently in line with market value, before being sold to the Trust.
5. Selling a company to an independent third party often takes more time and is more emotionally draining than you might think, for example, rigorous due diligence is required. In contrast, it can be more straightforward to establish an Employer Ownership Trust and sell the company to the Employer Ownership Trust (albeit that some care will have to be taken with the underlying documents).
6. When an owner is selling their business, this doesn’t automatically mean that they must leave. A business owner can decide how involved they wish to be, for example, they could remain, possibly in a different capacity, for an agreed amount of time.

If you would like to discuss Employer Ownership Trusts with B P Collins’ corporate and commercial team, please contact David Smellie at David.smellie@bpcollins.co.uk or call 01753 279034.