Our Family Law Team hosted a symposium at 1 The Sanctuary, Westminster, to explore whether there needs to be a change in culture in the courts’ approach to domestic abuse allegations in financial applications made in family law matter. Nicholas...
Employee Ownership Trusts (EOT) are becoming increasingly popular for business owners looking to sell their shares as an alternative to a traditional third-party sale. EOTs are approaching the crest of a wave. Data shows that they are particularly profitable compared to many traditional forms of business and they are producing high levels of productivity and employee satisfaction.
There are several potential advantages in selling to an EOT, the most commonly considered being the CGT exemption, the ability to pay a tax free annual bonus to employees and the ‘investment’ in the company’s employees to help retain and incentive staff.
Traditionally an EOT will neither have the cash nor be advised to pay in full for the shares up front so the selling shareholders should expect to be paid out over a number of years and usually will remain in the business in some capacity. How the EOT actually funds the purchase of the shares is another question that requires detailed consideration. Deferred consideration is to be expected but third party finance may also be an option.
We advise on all aspects of EOTs starting from the introductory conversation discussing the client’s aims and objectives and whether they think the business would work well within an EOT model. As there are crucial tax conditions to be satisfied to ensure the tax advantages are applicable, we work alongside accountants in what should be a team approach to ensuring the client makes a well-informed decision, understanding the various financing options and designing the appropriate structure.
In addition to setting up the EOT and the corporate trustee, there is likely to need to be work involved in reviewing and updated the company’s Articles and any shareholders’ agreement. In addition, a reward scheme such as an Enterprise Management Incentive (EMI) type scheme may be set up to give the employees actual share options and shares thereby giving them actual ownership.
We are used to both acting as the lead lawyers in designing and implementing the EOT structure and providing independent advice to selling shareholders who want to make sure that their interests (most importantly their ability to get paid out) are protected.
For any further information, please contact Ed Henderson.
