Selling to a third party isn’t the only exit route for business owners. With Employee Ownership Trusts you can sell your shareholding without incurring capital gains tax. And at the same time, you reward the employees who have helped you to grow your business.
Whether your exit goals are altruistic or financially driven, we can help you explore the benefits of a less conventional succession option.
Hundreds of progressive SMEs across the UK are now employee owned. In fact, it’s the fastest growing ownership structure for private businesses in the UK.
Employee ownership isn’t anything new – our team has been helping companies to put shares into trust for employees since the 1990s. But it’s become significantly more popular in recent years thanks to Employee Ownership Trusts.
The introduction by the UK government of Employee Ownership Trusts (EOT) in 2014 came with legislation offering capital gains tax (CGT) relief for shareholders selling to employee-owned trusts. This handed companies of all sizes a compelling financial incentive to sell a controlling stake of their business to their people.
Since 2014, we’ve seen a surge in businesses transitioning to this business model. In fact, in 2022 alone, Legal Clarity structured 13 Employee Ownership Trusts for a wide range of businesses, with deals ranging in value from less than £1m to more than £100m.
Our first deal (which led to an EOT controlling stake in 2014)
Value of EOT transactions we advised on since 2019
EOTs completed by Legal Clarity since 2019
Average value of EOTs advised on in 2022-2023
EOTs completed and in progress in the last 12 months
An employee-owned company is wholly or majority owned by the people that work for it. There are three ways you can transition to this structure.
1. Direct (or individual) ownership
Employees hold the shares in their own names (e.g. a traditional management buy-out).
2. Indirect (or trust) ownership
A trust is formed to hold shares on behalf of the employees (e.g. Employee Ownership Trusts).
3. Hybrid ownership
Owners may retain a minority stake or employees, such as the senior management team, may acquire shares individually (e.g. through EMI options or a growth share scheme). But an employee ownership trust is also formed. The EOT acquires and retains a majority stake.
Generally speaking, indirect ownership through an Employee Ownership Trust with 100% of the company is the most straightforward to set up and operate. But this doesn’t mean it’s the best choice for your company. As an alternative, we can structure a bespoke hybrid model to meet the unique aims of your business and selling shareholders.
We compare the direct, indirect and hybrid models in our guide to transitioning to employee ownership.
To reap the benefits of an EOT, you need expert legal guidance from an experienced team. We will help you secure a tax efficient exit for your shareholders, achieved in a way which rewards your employees and protects your hard-won business culture.
Legal Clarity Partner and EOT Lead
Gary acts as lead adviser on our EOT transactions, and as a trustee director including chairing the trust board of The 1:1 Diet Business (winner of Employee Ownership Business of the Year). Drawing upon his experience in a whole range of approaches to employee ownership – MBOs, trusts and hybrid models – he will guide you to the right employee ownership structure for your business.
The Legal 500: "The ‘outstanding’ Gary Davie, reputed for his capabilities in employee buyouts."
Tax Expert and Trusts Specialist
With years of experience guiding businesses large and small through employee ownership, Jane is a go-to advisor for business owners contemplating transition to an EOT. Jane will talk you through the alternatives, explaining the individual impact of every option. She can work with you to plan a succession route that matches your ambitions for your business.
Client Testimonial: ''Jane was our main contact who is excellent. I could not rate them more highly.''
Tax benefits of an EOT
Wider EOT benefits
Are you worried about the impact of a traditional company sale on your business’ culture? Your business may be facing succession issues? The prospect of a tax-efficient way to sell your business and release some capital may have attracted your attention? Or if could be that you simply like the idea of an employee buy-out over selling to a third party?
There are no industry exemptions or size limits for EOTs, but certain conditions need to be met and your trust will need to be structured and managed in a certain way to qualify for the tax relief and other benefits.
1. Evaluating your exit strategy
We’ll explore all disposal options with you and make sure an EOT meets your goals and expectations.
2. EOT design & formation
We’ll design a bespoke model that meets all EOT qualifying conditions, so tax benefits apply and your shareholders’ expectations are met.
3. Supporting the sale process
We’ll prepare all share transfer and trust documentation to ensure a swift process and legal compliance.
"Gary was highly professional and very personable which made the whole process very straightforward. If Employee Ownership is right for your company, I would have no hesitation in recommending Gary to arrange it for you"
"It’s a natural fit.
The Legal Clarity team aren’t just lawyers, they’re human beings. We could trust them to take care of the legal stuff, but we also know they really got who we are and what we wanted to do.
It just felt right."
"I cannot thank you all enough for your tremendous hard work, diligence and assistance with [the Project]. It’s really felt like a team effort and whilst hard work has been a brilliant amount of fun. I’ve been taught a huge amount, so thank you all for your patience."
Contact us to arrange an initial conversation
about how employee ownership could work for you and your business.
