The way ownership is organized within companies is undergoing a transformation worldwide. More and more businesses are embracing the concept of employee ownership, where employees are not only seen as workers but also as co-owners of the company. One of the most emerging and successful models within this trend is the Employee Ownership Trust (EOT). But what exactly is an EOT, and why are more companies opting for this ownership structure? In this blog, we’ll take a deeper dive into the world of Employee Ownership Trusts.

What is an Employee Ownership Trust (EOT)?

An Employee Ownership Trust (EOT) is an ownership structure where a company is transferred to a trust that manages the ownership on behalf of the employees. This means that all employees collectively become owners of the company through the trust. The EOT is designed to facilitate the process of business succession and provide companies with a stable foundation by sharing ownership and control with their employees.

Unlike traditional ownership models, where a company is controlled by a small number of shareholders or investors, the EOT creates a collective structure in which employees as a group benefit from the company’s growth and profitability. The profits that would otherwise go to external shareholders as dividends can now be distributed among employees or reinvested in the company to foster sustainable growth and development.

How Does an EOT Work in Practice?

Setting up an Employee Ownership Trust involves several steps:

1. Establishing the Trust: The owner of a company sets up an EOT, a legal entity that manages the company on behalf of the employees. The trust can acquire all or part of the company’s shares.
2. Selling Shares to the EOT: The owner sells (a portion of) the shares to the EOT. This sale can occur all at once or gradually. Often, the sale is financed by the company itself, using future profits to pay the seller.
3. Management by Trustees: The EOT is managed by trustees who oversee the ownership on behalf of the employees. The trustees ensure that the employees' interests are protected and that the company’s operations align with the objectives of the EOT.
4. Benefits for Employees: Employees can benefit from the EOT in various ways. They are entitled to a share of the profits (usually through profit-sharing or bonuses) and may, depending on specific agreements, have a say in certain strategic business decisions.

What Are the Advantages of an EOT?

Implementing an EOT offers numerous benefits, both for the original owners and the employees. Below are some of the key advantages:

• Business Continuity and Security: For owners looking to retire or step back from the business, an EOT offers a way to transfer the company without selling it to an external party. This means the company remains in trusted hands, ensuring continuity.
• Employee Engagement and Motivation: Employees who are co-owners of the business tend to feel more engaged and motivated. Since they directly benefit from the company’s profitability, this often leads to higher productivity, lower turnover, and an improved company culture.
• Tax Benefits: In countries like the UK, there are significant tax advantages associated with an EOT. For example, the sale of shares to an EOT in the UK is entirely exempt from capital gains tax. Additionally, companies can, under certain conditions, distribute tax-free profits to employees.
• Protection Against Takeovers: An EOT protects the company from unwanted takeovers by external parties. Since the shares remain in the trust, it is more difficult for outsiders to acquire or dismantle the business.
• Equality and Inclusion: EOTs promote equality by ensuring that all employees, regardless of their position or tenure, benefit from ownership. This contributes to a more inclusive company culture where everyone feels valued.

EOTs Worldwide: A Growing Trend

While the Employee Ownership Trust is originally a British concept, we see that EOTs are gaining popularity globally. The UK introduced the EOT in 2014 to facilitate business succession and encourage employee participation. Since the introduction of this legislation, the number of EOTs has surged. Over the past ten years, more than 1,750 companies have transitioned to an Employee Ownership Trust, meaning that tens of thousands of employees are now co-owners of their businesses.

Other countries like Canada, the United States, and Australia are exploring the possibility of introducing similar legislation to support EOTs. For example, Canada passed a new law in 2024, offering a tax exemption for the first 10 million dollars in capital gains when selling to an Employee Ownership Trust. In the United States, policymakers are considering EOTs as an alternative to current Employee Stock Ownership Plans (ESOPs).

Is an EOT Suitable for Every Company?

While an EOT offers many benefits, it’s not necessarily the best option for every company. The decision to adopt an EOT depends on various factors, such as the company’s size, financial health, and the willingness of the current owners to share ownership and control. It’s important to carefully evaluate the options and seek expert advice.

Some questions companies should ask themselves before transitioning to an EOT include:

• Are employees interested and willing to become co-owners?
• Is the company financially stable enough to facilitate the transfer of ownership without jeopardizing cash flow?
• What role do the current owners want to play after the transfer?

Conclusion: The Future of Employee Participation

The Employee Ownership Trust is a powerful tool for sharing ownership, ensuring business continuity, and actively involving employees in the company’s success. More and more companies are discovering the benefits of this ownership structure, leading to the global rise of EOTs. While setting up an EOT requires careful planning and guidance, the long-term benefits – both for the company and the employees – can be substantial.

Want to know if an EOT is suitable for your company? Contact Share Council for professional advice and guidance. Together, we can explore the possibilities of sharing ownership and control, making your business stronger, more resilient, and future-proof.