What are Employee Ownership Trusts?
When faced with succession planning and various exit strategies, the founder of a business will have a number of options. For a business that has a strong culture, it may be that the founder is keen to ensure that this continues under new ownership. And, of course, selling it to existing staff guarantees this.
Ahead of Employee Owned (EO) Day on 28 June, a national day of celebration for employee owned companies, could EO be the correct exit strategy for you?
With a yearly growth rate of 10%, employee ownership contributes around 4% of GDP to the UK economy, representing £30bn per annum.
During the 2008/9 recession, EO companies were shown to be more resilient, more profitable and attracted more staff than traditional businesses. Recent independent research has found that employee owned businesses (EOBs) continue to achieve higher productivity, greater levels of innovation and a more engaged workforce. EO enjoys support across the political spectrum and a number of generous tax reliefs were introduced by the government in 2014 to back wider employee ownership.
Tax Advantages
“EO brings substantial tax advantages,” explains Daren Laidlaw, a specialist advisor on business succession planning at Rothmans, “When you sell a controlling interest in your business to an Employee Ownership Trust, no Capital Gains Tax will be due, compared with 10% charge on a standard shares sale. An EOB can also pay an annual bonus of up to £3,600 to employees without being subject to income tax.
“Different forms of EOBs are available for every sector and size of business. Business disposal and business growth need to be considered equally, looking at management changes, financial and legal issues, and even the emotional aspect around the founder or owner’s chosen exit strategy.
“Finally, the focus needs to be on ensuring the long-term future of
a business, whether that is EO, management buyouts or trade sale.”
Download our EO brochure to find out more.