Employee Ownership Trusts (EOTs) continue to grab headlines. This week has seen a familiar line, this time in relation to the toy store chain The Entertainer – where some of the coverage has followed a familiar line: generous founder “gives the business to the staff”, a feel-good story of succession without a sale to “big business”.
Ignoring The Entertainer, the truth is often more complex — and more interesting.
We’re currently advising a client who is weighing up an EOT as one of several exit routes. For her, the appeal is real: the company could continue under the same brand, in the same premises, run by the same team — but with the employees as the ultimate beneficiaries. On paper, it’s a smooth transition that protects the culture she has built over a period of 15 years.
Why EOTs are attractive
The government introduced EOTs to encourage employee ownership and broaden shareholding in UK companies. When the qualifying conditions are met, selling shareholders can benefit from a 100% capital gains tax exemption on the sale. That alone has put EOTs firmly on the radar for many owners.
Beyond the tax, there’s a cultural argument: employees may be more engaged when they have a stake in the business’s success, and ownership by a trust can help retain talent and strengthen loyalty. For owners who want to see the business continue in familiar hands, it can be an elegant solution – an alternative to the age-old Management Buy-Out.
The commercial realities
Despite some of the headlines, an EOT is not a gift. It’s a sale — but one often funded out of the company’s future profits, paid to the former owners over time. That means the price must be set at a level the business can sustain without harming its ongoing operations.
Governance also changes. The trust’s board must act in the employees’ interests, which can create a different dynamic for decision-making. This can be a positive — more voices heard, more long-term thinking — but it can also slow down commercial responsiveness if not well managed.
And how long will they be around? Every tax-saving scheme is under scrutiny at the moment as the Government faces pressure to reduce the UK budget deficit. Are EOT’s under threat? – we will see.
When an EOT works best
EOTs tend to work well when:
- The business has stable, predictable cashflows to fund the purchase price over several years.
- There’s a capable management team ready to lead without the founder.
- Cultural continuity is a priority for the exiting owners.
- The employees are engaged and likely to value the ownership model.
They’re less likely to be the best fit when:
- The business needs significant reinvestment in the near term.
- The seller wants all cash up front.
- There are unresolved management or cultural issues.
Our role in the process
In our current client project, the legal work will come later. Right now, the value lies in the decision stage: mapping out the implications, running through scenarios with her corporate finance adviser, and sense-checking the numbers with her accountant.
An EOT isn’t the only route — and part of our job is to ensure the client fully understands how it compares to a trade sale, a private equity deal, or a management buyout. We’re also making sure the governance model, funding arrangements, and trust structure would actually work in her business, not just on paper.
Conclusion
EOTs can be a brilliant tool — but only when they’re the right cultural and commercial fit. They deserve neither blind enthusiasm nor blanket scepticism. The best results come when they’re chosen deliberately, planned thoroughly, and implemented with the right professional team from the start.
If you’ve seen something here that you’d like to discuss further, please contact us at [email protected].
