Employee ownership trusts (EOTs) are increasingly popular ownership models that can deliver benefits to an organisation’s shareholders and its employees.
However, while EOTs offer a ‘third way’ alternative for shareholders to exit beyond the more common trade sale or an IPO, careful thought is needed over how EOTs are structured and how the sale of shares will be provided for and funded.
An EOT is, broadly, an employee benefit trust established for the benefit of all employees of a company, and that trust then controls the business more generally.
An EOT must meet certain statutory criteria, the chief one being that the EOT must have a controlling interest in the company in question, which means the EOT must hold more than 50% of the share capital and voting rights of the company and be entitled to more than 50% of the profits available for distribution or assets on a winding up.
Through the EOT, each employee effectively becomes joint owner of a majority of shares in the company, in a similar model to that adopted by John Lewis.
EOTs have become a popular ownership model for businesses of a variety of sizes and in multiple sectors since their introduction in 2014. In particular, a number of businesses in the healthcare and childcare sectors have implemented an EOT. This reflects the importance of employees in these people-based businesses and the associated need to address high employee turnover.
For example, Edinburgh-based...
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