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Employee Ownership Trusts (EOTs)

Employee Ownership Trusts are becoming more popular as a means for company owners to leave their company. Many owners I come across are either unaware of this alternative route to leave their company or have misconceptions about how they work.

What is an Employee Ownership Trust (EOT)?

Employee ownership means a company where a majority of its shares are owned by its employees. It is achieved by the shares being sold from the existing shareholder(s) to an EOT Trust. The Trust owns the shares for the benefit of the employees.

The unique feature of an EOT is the company’s shares are held in a discretionary trust as a collective agreement for the long-term benefit of all the company’s employees. The arrangement aims to secure the company’s ownership and its independence.

The selling shareholder(s) may receive some or all of the consideration for their shares on completion with outstanding amounts being a debt to the Trust paid out of the company’s profits over an agreed period after completion.

In the case of a sale of the company to another third-party owner, there are complexities which do not occur with an EOT.

  • Legacy Issues where the founders do not want to let go of what they have built.
  • Loyalty Issues where owners feel they are abandoning employees, disrupting local economies and giving up on their assets.
  • Taxes where third-party transactions or management buy outs carry capital gains liabilities.

In the case of third-party’s transactions a buyer may not be found, let alone an offer made. Selling to an EOT provides a solution as a fair value to both parties which can be agreed without the need for a third-party offer.

Subject to certain rules, the vendor(s) will not pay capital gains tax on the consideration received for their shares.

Concerns about loyalty are met by way of protecting employees and rewarding them by way of an annual bonus of up to £3,600 income tax-free each year paid by the company, not the Trust to each employee. In the future, when the company’s finances permit, dividends may be paid to the Trust and so to employees.

The legacy and independence of the company are retained along with its culture and values, which I have seen too often, maybe lost with a third-party sale.

Why would an EOT be attractive?

The attractiveness of making the move to employees is that it secures their jobs; they pay no tax nor need to raise capital to purchase the shares.

While for the vendor(s) it can be a way of reducing the concentration of their wealth in the company and paying no capital gains tax.

Other attractions are the confidence to customers and suppliers of the company’s longevity. EOTs may inspire  added effort of the employees as they become owners of the company in which they work. This should lead to better retention and o to increased performance, profitability and long term success.

It allows the owner to manage their exit on their terms. They can sell some or all of the shares in stages as part of their estate planning. They may retain some ownership over the longer term. In the case of a family company, other members of the family may retain some shares.

As a result, the decision to become employee owned is one made to safeguard the long-term future of the company’s ’ ownership. Furthermore, it also protects its values and culture – something that most owners are incredibly proud of.

Peter Drucker said “Culture eats strategy for breakfast.” To be clear he did not mean strategy was unimportant – rather that a powerful and empowering culture was a surer route to the success of a company.

Therefore, these benefits are complementary to the tax benefits. Subject to the rules, there is an exemption from capital gains tax on the entire proceeds and the opportunity to offer employees tax free bonuses.

Any owner interested in this idea should really be asking the question: Why wouldn’t I consider an EOT as the only alternative?

In the planning for ownership succession there is no need to be concerned about the end of a company’s brand, name, legacy or culture. Consequently, employee ownership has been proven (see examples below) to deliver long-term sustainability by transferring ownership to a new generation of owners. Likewise, the associated risks of a trade sale are voided. Support and engagement from employees can happen. Management buy-outs do not always achieve this.

The Risks

Yes, there are risks.

Where the company could be sold to a strategic buyer, the price is likely to be higher since the fair value for the shares as part of an EOT arrangement are valued on the basis of a financial buyer rather than a strategic one.

There needs to be transparency in the arrangements and they need to be done correctly otherwise the various parties will make unwanted discoveries.

Employee ownership requires two things.

There must be a mechanism where the ownership can be shared among all employees. Equally the company has to have a culture and a structure where employee influence and voice can be shared. The two are intrinsically linked. As a result, of these two matters the benefits should be achieved.

Some of the Misconceptions

It is not the case that EOTs are only for larger companies. Likewise smaller companies due to their viability may not be suitable.

I have seen concerns, as employees are equal, this effectively means one person one vote. This is not the case. There can still be senior leaders and a board of directors to guide the company day-to-day. However, major decisions would require input from the trustees (as it would have previously, but with the board of directors).

If employees are not performing, they can, subject to the proper procedures and protocols be sacked.

I have come across examples where the company already has debt before the EOT is put in place. Where this happens there has to be ruthless stress-testing to ensure the company is not taking on too much debt. Forecasts have to be prepared and scenarios run to ascertain the affordability of the debt both ongoing, if relevant, and future debt as part of the EOT.

The owner who sells all or part of their shares can still have a say in how the company is run. They can remain on the Board and be a Trustee if required.

HMRC will perceive these arrangements as tax mitigation. This is unlikely as tax clearances are obtained from HMRC before the transaction is completed and, like other arrangements, such as those for pension funds, provided the rules are followed, HMRC will not assess EOTs as tax mitigation schemes.

The Ownership Dividend  

In July 2018, the business-led Ownership Effect Inquiry published its report  EO Inquiry Final Evidence Report.  The Ownership Dividend. Chaired by Baroness Bowles of Berkhamsted, the Ownership Effect Inquiry is overseen by a number of business organisations.

Most importantly, the report says the employee-owned “sector” accounts for well over £30bn of turnover in the UK. In her forward, Baroness Bowles wrote that the sector is “thriving and fertile,” but noted that the model is not necessarily “ideal.” Above all its impact is not automatically and neither does it work for all.

Besides this the report found that among employee-owned business, there were increased levels of productivity and efficiency, improved workforce retention, easier recruitment and employee-driven innovation. Longer-term decision-making seems to lead to greater resilience.

In contrast, owners who decide to transfer the ownership of their business to their employees are still relatively unusual. They take the view that although they have been offered lots of money to sell; they decide not to do this. As a result, the owner has a sellable business. Certainly, owners take the view that whoever bought their business could have chopped it all up and sold it on.

They feel they could not do that to long-serving employees.

Your decision

This option is not something that can be rushed into and requires a company that is sustainable without you the owner working full time in the company. In other words it has to be sellable in the first place. Moreover, it will mean the systems and processes are in place and you, the owner, are not working in the company.

Moreover, if the impact of an EOT can be to reward employees while providing you with a legacy. This is a reason Julian Richer, and Dame Stephanie Shirley made the move as you may read below.

Clearly, this briefing cannot go into all the details of an EOT arrangement.

So, if this idea is of interest to you then I would be happy to chat it through with you and see if it is something that works for you and your company.

I look forward to hearing from you.

History and Examples

Here is some history and examples of EOTs.

Employee Ownership Trusts have been around for some time. They were started when the John Lewis partnership was created and have been followed by such companies as Arup, Richer Sounds and Riverford organics.

Published in June 2022, the Employee Ownership Top 50 shows:

  • Combined sales: £21.7bn (up 1.3 on a like for like basis %)
  • 180,213 combined employees (down 0.2% on a like for like basis)
  • median productivity increase of 9.4% ’like for like’ or 5.2% as a whole, double the UK average of 2.6%

This report shows the highest movers as Mott Macdonald into second place, and Howden Group in fifth position behind other regular table leaders Arup, and John Lewis Partnership. New to the Top 50 are Foster + Partners Group Ltd, Buckingham Group Contracting Limited, Independence Matters CIC, and Go Ape (Adventure Forest Group Ltd.

Download the table

While a trade sale to a third party can be appealing it is not suitable for every company and there may not be an offer. Management buy outs may also be considered but the risk I have seen is the tension in the senior leadership team. Employee Ownership (EOT) is a strategy the outcome of which puts you, the seller, in more control as well as enjoying tax breaks.


“its surprising that more businesses aren’t owned by employees,” says Miriam Stanley Arup’s regional financial chief. She was quoted in Raconteur dated 3rd November 2019.

“Employee ownership is particularly attractive to younger people coming in. I hear the word ‘purpose’ bandied around quite a lot nowadays. There seems to be a thirst for it, and to hear and to see the purpose and values of a company lived out on a day-to-day basis can only be a good thing. It certainly makes for some interesting exchanges.”

Moreover, around 180 companies from Amazon to Siemens, Pfizer to Apple, that collectively agreed to change the definition of the purpose of their corporations. Likewise, there was a shift away from shareholder primacy and making them money, to serving all stakeholders, including employees, communities and the environment.

So, Employee Ownership trusts echo this shift. it also impacts how finance functions decision-making becomes more democratic and accountability to peers rather than bosses is more prevalent. Discussion and persuasion come to the fore.

Richer Sounds

In May 2019, Julian Richer, the owner of Richard Sounds transferred a majority stake (60%) in his company to his 500 plus employees via an employee ownership trust. As part of the arrangement each employee will also receive a windfall of £1,000 for every year of service.

Now Julian Richard is 60 years of age and said he “has reached the age when he thinks of posterity”. Because the couple do not have any children to take on the business, they felt it was the best thing for them to do.

Most importantly, Julian Richer did not want to sell to a stranger. As a result, they might have completely different aims and ambitions for the business. He said: “I’m hoping it will ensure the succession of the business.”

Unsurprisingly Richer, whose mantra has always been “people before profits” went on to say:

“I’ve been running my business for 40 years and the overriding thing I’ve learned is that it’s all about the people. If you treat people right, then they are going to be happier, give a better service [to customers], stay with you and they are not going to steal.”

What will he do now?

He is not retiring from Richer Sounds. There will be a contract of employment and agree his hours of work. The operations will be managed by the chief executive, Julie Abraham. Julian Richer is one of the trustees of the employee ownership trust.

Now all of this generosity may come as a bit of a shock to some business owners. As a result, you will though see from the list below that it is not rare. The concept was pioneered by the John Lewis Partnership in the 1920s, when John Spedan Lewis created a trust settlement for his father’s departmental store. John Lewis is the largest employee-owned company in the UK.

Another pioneer is Dame Stephanie Shirley

Dame Stephanie Shirley

In an article in The Sunday Times Business News dated 1st September 2019, Dame Stephanie Shirley, founder of Freelance Programmers in 1962, described her experiences here.

She writes:

“We eventually decided to set up a trust that would hold shares for the staff. I started by giving up 4%, then topped up the holding each year until 17% of the equity was held in trust for the workers.

“However, it made no cultural difference. Only at our silver jubilee in 1987, when I donated a further 7% to take the trust’s holding up to 24% (at no cost to anyone but myself), did the staff seriously consider that they might come to own the company.”

“Which was how the story was set to develop. But trend is not destiny. Circumstances intervened.”

Dame Stephanie goes on to describe the distressed sale of some of the shares and how her dream of 100% staff ownership disappeared overnight. The business recovered and eventually, one in three of the workforce had a significant holding but it still it didn’t make any difference.

Her story continues:

“So, clearly, we had to think more boldly: we offered 30% of my stock holding in an internal market. And that finally did make a difference. A distinct sense of corporate excitement and electricity in the air followed the relinquishing of my personal control to the workforce. So, it as that my co-ownership dream was realised, albeit not in the way I had expected.

“How long did this take? From the original concept to 62% staff control, more than 15 years, during which time I kept my head down and worked as hard as ever”.

The progress was slow as she paid the scheme’s legal and administrative costs.

“Yet long-term co-ownership proved to be the right exit route for me. And exit all founders must.

“Given that all the hassle left me with a smaller slice of a larger cake, would I do it again? I do not hesitate yes, I would.”

Who else is doing it?

Looking into the UK’s 50 largest employee-owned companies show a broad range of industries, in all sizes and all regions of the UK.

  • Engineering: Mott MacDonald Group; Arup; CH2M; BMT; Black & Vealch, Union Industries and PA Consulting.
  • Logistics: Unipart and Steer Davis & Gleave.
  • Social Care & Health Care Services: Shaw Health Care; Bristol Community Partnership; Medway Community Healthcare; Local Community Partnerships and Care & Share Association
  • Travel Guide: Sawdays.
  • Preserves: Wilkin & Son.
  • Training: Prospects Education.
  • Retail: Riverford Organic Farms and Oldrid & Co.
  • Manufacturing: Gripple and Scott Bader
  • Leisure: Alfa Leisureplex.
  • The engineering company Weir Group is giving all 15,000 staff shares this year (2019) and next.

Wallace & Gromit and Shaun the Sheep.

In November 2018, Aardman the Bristol-based step-motion animation studio set up an EOT. They are behind Wallace & Gromit and Shaun the Sheep provided 75% of its shares to an Employee Ownership Trust.

In a Joint statement, Peter Lord and David Sproxton, who together founded the company in 1972, said: “We’re not quitting yet. But we are preparing for our future. The creation of an employee trust is the best solution we have found for keeping Aardman doing what it does best.

We need to keep the teams in place and providing continuity for our highly creative culture. Those that create value in a company will continue to benefit directly from that value.”

Sproxton will continue as managing director (MD) for now. He will be accountable to the EOT, but a new MD will be appointed sometime this year, when Sproxton will move into a consultancy role.

Employee Ownership Association

The Employee Ownership Association (EOA) estimates that no more than 200 UK Companies are owned by employees. Momentum is now gathering behind the idea as a result of several high-profile conversions and potential backing from the shadow John McDonnell.

Furthermore, there are down sides to selling to worker can be an involved process for owners. They may have to wait a few years to receive all the cash due to them.

Even so these doubts do not stop founders setting up the arrangements. Employees own shares via a trust and will receive a share of the profits. They will also be able to help make decisions on the future of the company via a workers’ council.

Julian Richer has a strong streak of idealism and egalitarianism. With that in mind, motivated owners see EOTs as a better way to ensure a company’s future than a trade sale. 

The Nuttall Report

Graeme Nuttall, a partner at lawyers Field Fisher Waterhouse LLP, wrote The NuttalReport on employee ownership for the coalition government which was published in July 2012. It explains the obstacles to promoting employee owned companies and sets out a framework for knocking them down. Recommendations are also made to the government on how to promote employee ownership.

He wrote: “There are baby-boomers’ owners of successful, independent businesses who do not want to sell their life’s work to a competitor to see it disappears into a conglomerate.”

His report led to the establishment of EOTs in 2014.

Here are some of the legals. 

Selling to a Trust

Selling to a trust allows founders to avoid paying capital gains tax. It also permits the payment of a tax-free cash bonus to employees of up to £3,600 a year.

The companies set out above are prominent in their respective industries. They are held up as by supporters as proof that such an ownership structure does not mean sacrificing competitiveness.

The EOA 2018 Annual Review written in November 2018 by the EOA and advisory firm RM2 claimed the 50 biggest employee owned-firms are responsible for £19.8bn of annual sales and increased productivity by 7.3% in the first quarter of 2018.

This report did include the John Lewis Partnership which had revenues of £10.2bn.

So, given the model is such a good force, why is it not more widespread?

The trusts were set up in 2014 and only 250 forms have converted.

First of all, it takes a time for owners to receive their full consideration. They are paid out of annul profits meaning they might have to wait years to realise the full value of the sale. Likewise, there is also a fear among some executives that running a staff-owned business is tough because big decisions have to be made and approved by the employees.

The managing director of Union Industries, Andrew Lane, has rejected this criticism. “We are exceptionally nimble,” he said. “We can make a decision today, and tomorrow it’s out in the field.”

He goes on to say the profits at Union Industries had increased every year since the structure was changed.

The lack of knowledge among owners that employee ownership is an option is another reason. It will though require a wholesale shift in how we view business success for there to be a greater uptake.


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Andrew Watkin

Andrew is the director of Assynt Corporate Finance Limited and an Accredited Member of the Association of Crowdfunding experts.

Previously a partner and head of corporate finance at Baker Watkin LLP, Andrew has more than 40 years of experience in all forms of corporate finance across many business sectors.

Andrew was the Chair of Governors at a local school for six years retiring in December 2020 and continues to be an Assessor of Expeditions for The Duke of Edinburgh's Award.

You can find out more and connect with Andrew over on LinkedIn.

Need Help? Contact Andrew at Assynt:

If you are serious about selling your business, contact Andrew to arrange an informal chat, in person or over the telephone to assess the options open to you.

You can also contact Andrew by email at: or by completing the form on this page.

Call today on 07860 898452

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