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Employee Ownership Trusts

What are EOTs?

Employee Ownership Trust (“EOT”) businesses are owned indirectly by their employees via a Trust which operates for the benefit of employees. The most famous of this type of business is the John Lewis Waitrose Partnership, but across the UK there are many other high profile EOTs such as Aardman and Richer Sounds.

Our experience

Pett Franklin has proudly supported the development of EOTs via our involvement with government to support the EOT legislation as well advising the Department for Business on EOT governance.

As well as being part of the establishment of EOTs in 2014 Pett Franklin is a member of the Employee Ownership Association and advises businesses on converting to employee ownership and supporting existing EOTs.

How EOT conversions work

The selling shareholders of the business need to sell a controlling interest in the business to a Trust which exists the operate in the interests of the employees and the Trust becomes the controlling shareholder of the business.

The selling shareholders receive value via deferred consideration from the Trust. The settlement of this deferred consideration can arise from cash in the business at the point of sale, the raising bank debt and the future cash flows of the business.

For an EOT to be successful you need both

  • cash, to fund the consideration,
  • and culture, to transition the business to being employee owned.

Tax Incentives

To encourage Employee Ownership:

  • the sale of the business is free of Capital Gains tax,
  • and each employee can receive a Income tax free bonus of up to £3,600
 And EOT businesses can still benefit from other share schemes such as EMI and SIPs.

How is the price set?

A key ingredient in a successful EOT conversion is determining the price the Trust pays for the business and how the transaction will be funded.

The price determination process for an EOT is different from conventional company sale processes and the associated marketing, due diligence and auction.

Instead with EOTs the price paid is agreed by the Trustees and largely depends on the future cash flows of the business. At Pett Franklin we can support clients in preparing the necessary financial modelling and projections to make informed decisions in relation to price and leverage this analysis to support bank debt financing.

Depending on the business and its industry selling shareholders can find EOT conversions can be more lucrative consideration than traditional company sales and considerably less expensive to execute.


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