Introduced in 2014, Employee Ownership Trusts (EOTs) give a good alternative to the usual ways of passing on a business. They offer unique benefits to businesses, their employees, and the whole economy.
Better employee engagement and productivity
One of the best things about EOTs is that they help employees feel more engaged therefore increasing productivity.
As beneficiaries of the trust, employees have a direct stake in the success of the business.
Employees become part-owners, which makes them more committed to the company’s goals.
Research suggests that companies with engaged employees do better on many things, including having fewer days off sick, being more productive and having happier customers.
Financial benefits
EOTs also have significant financial benefits. For business owners looking to sell, selling a controlling stake (more than 50 per cent) of the business to an EOT doesn’t involve Capital Gains Tax (CGT), making it a cheaper way to plan for succession.
The employees, as beneficiaries of the EOT, also get the chance to receive tax-free bonuses, up to a certain limit every year.
These incentives can lead to big tax savings for both the selling owners and the employee beneficiaries.
Stability and staying power
EOTs make businesses more stable and help them last longer, particularly when planning for succession.
Compared to a traditional sale of a business, where the future might be uncertain, a sale to an EOT makes sure the business continues in line with its existing values and goals.
The employees, many of whom may have worked for the business for a long time, are naturally invested in its continued success.
This can cut down on disruption to the business during the transition phase and improve long-term business prospects.
Helping the economy stay resilient
At a larger level, businesses owned by EOTs help the economy stay strong. Research has shown that employee-owned businesses are less likely to go under during economic downturns.
This resilience comes from their focus on staying sustainable in the long term rather than short-term profits.
They are also more likely to keep employees during tough economic times, giving stability at both a company and community level.
Helping society
Lastly, EOTs can help create a sense of social responsibility and collective well-being.
Businesses owned by their employees are often more invested in their local communities, contributing positively to society.
EOTs give a strong alternative to traditional business structures and should be considered as part of a business’s succession or exit planning.
These trusts are likely to play an increasingly big role in creating a more inclusive, resilient, and sustainable business environment.
Macalvins can give expert advice on EOTs, please get in touch with us.