EOT: Summary and case study When business owners, particularly those of smaller companies, are thinking about succession plans, they will inevitably look to their family, or senior management, for internal take-overs. Otherwise, they may feel they have to put the business up for sale instead. But there is another way. Sometimes referred to anecdotally as the ‘John Lewis Model’, an Employee Ownership Trust (EOT) provides a route out of the business for owners and an incentivised future for staff who now have the opportunity of a stake in the company for which they work. By creating a trust to be run by all employees, the business has a natural succession and avoids many of the issues and risks which come from selling to external parties. It also encourages greater loyalty and engagement from staff, who can now have a say in the future running of the company. This has been proven to often increase innovation and performance through having a mutual benefit for all. There are tax benefits too, as setting up an EOT allows business owners to exit without any capital gains tax to consider. It also provides options of bonuses for staff through their share options, rather than through their salary. For any owners considering this route, the first step is to ensure you have the right advisors on board, ahead of time. Due to the nature of the trust arrangement and the tax implications, EOTs require a lot of planning at the beginning. A range of qualifying criteria needs to be met along the way, which requires professional support. Although EOTs were once only considered for much larger companies, there are some advisors, such as ourselves, who have the expertise to set up and manage trusts for a range of different companies. The value comes from having advisors with the right insight, not only to identify whether this is a possible route to take, but also, to manage through the process and advise the trust in the aftermath of the handover.
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