An Employee Ownership Trust (EOT) is a statutory structure introduced by the Finance Act 2014 to enable a company to become majority-owned by its employees through a dedicated trust. The EOT holds shares for the benefit of all employees collectively, ensuring the company’s long-term independence and succession stability. This form of ownership has become increasingly popular among founder-led and family-owned businesses looking to preserve culture, reward employees, and plan an orderly exit.
How does it work?
Instead of selling the business to a third party (such as a competitor or private equity investor), the existing shareholders sell a controlling interest (more than 50%) to a newly formed Employee Ownership Trust. The EOT holds those shares as a long-term steward of the business. Employees do not own shares directly but benefit from the ownership through their participation in the company’s success, typically via performance-related bonuses and a stronger say in the company’s direction.
Here’s a simplified example
John and Sarah own a successful engineering consultancy. They wish to step back from daily operations but retain the firm’s independence. Rather than selling to a larger competitor, they establish an Employee Ownership Trust. The EOT acquires 100% of their shares, funded partly by company cash and partly by deferred consideration paid over several years. The trust now holds the shares for the benefit of all 50 employees. Employees do not hold individual shares but benefit from profit-sharing and greater engagement in the company’s future. John and Sarah achieve market value for their shares and preserve the legacy of the business.
