The Advantages of Employee Ownership Trusts in Modern Business

The structure of business ownership is in transition, with companies increasingly developing structures that engender stability, long-term growth and worker motivation.

One model increasingly common in the UK is an Employee Ownership Trust (EOT). By transitioning towards employee ownership, companies can create a less hierarchical and more efficient working environment and secure the business’s future.

Understanding the Employee Ownership Trust Model

An employee ownership trust or EOT will allow companies to pass down ownership in a planned and tax-effective manner to their workers. Instead of having to sell to outsiders or their competition, owners can have continuity by passing over to its most interested and involved group of workers—the workers themselves. Not only will morale in the workplace improve, but long-term thinking will dominate, with workers having a direct benefit from its success.

EOTs are best for entrepreneurs who seek an exit with minimum disruption in operations. Unlike traditional sales of a business, with new management, comes uncertainty, an EOT keeps operations less disturbed and continues with a fairer distribution of wealth for its success contributors.

The Economic and Business Benefits of EOTs

Companies that make a transition towards an EOT structure can enjoy significant benefits, including increased productivity and increased job satisfaction for employees. As workers become owners, workers will become inclined towards contributing to decision-making and operations of the business. As per studies, companies with shared types of ownership have a high probability of outperforming traditional types of ownership in adaptability, innovation and profitability.

Additionally, EOTs have financial incentives, such as tax allowances, that make them an attractive option for entrepreneurs looking for a long-term exit path. Selling to an EOT with no Capital Gains Tax is a strong attraction. Employee-owned businesses even have a proven track record of providing sounder financial performance, with workers having an additional motivation to drive efficiency and success.

Employee Ownership Trusts and Business Resilience

The stability facilitated by an EOT model is a big draw, particularly in times of financial uncertainty. With long-term viability taken over financial gain, employee-owned businesses stand a strong opportunity to weather financial downturns. By removing uncertainty about external investors and hostile takeovers, EOTs allow for the continuity of a business with its values and cultures preserved.

A study conducted by the Employee Ownership Association discovered that companies with employee owners have fewer cases of workers changing jobs and enjoy increased job security. Employee-owned companies’ resilience best positions them for sectors in which continuity and stability are key to long-term success.

Impact on Workplace Culture and Employee Engagement

A strong work environment is a successful driving force in a business and EOTs have been proven to enhance morale in organisations. Staff with a voice in a company’s future and a sense of value will work with heightened motivation and contribute positively in a meaningful manner. With a sense of ownership, organisations enjoy heightened retention, heightened collaboration and successful working together in a group environment.

Many businesses have transitioned to an EOT model and report increased innovation and creativity, with employees taking an active role in problem-solving and future planning. With a direct financial interest in a successful company, employees go out of their way to implement new efficiencies and new ideas that have a positive impact.

Legal and Financial Considerations of EOTs

Setting up an EOT necessitates careful financial and legal planning. Owners must establish a trust in whose name stocks in the company will be stored for workers, in compliance with tax laws and governance structures in a country. One of the financial benefits of EOTs in the UK is that owners can sell stocks and not pay Capital Gains Tax, under the assumption that a controlling proportion of stocks will be in a trust name. Tax-free bonuses can even be handed out to workers and for both owners and workers, therefore, it is a financial draw for companies to use this model.

It is critical for companies thinking about an EOT to seek expert financial and legal consultation in an attempt to comply and make a successful transition. Planning for trust structure and governance must be careful in a manner that will make it long-term sustainable and in harmony with business objectives.

The Growing Popularity of EOTs in the UK

The number of companies becoming employee-owned companies continues to rise steadily. High-profile employers such as John Lewis and Aardman Animations have long embraced this model and many have taken it as a model to emulate. The UK government has supported the development of EOTs through positive regimes and incentives in terms of taxes.

According to new statistics collated by the Employee Ownership Association, in the UK, over the past five years, employee-owned companies have increased more than double during that timeframe. With growing awareness, even more, entrepreneurs are regarding this model as a viable alternative to traditional succession planning. With increasingly larger companies appreciating long-term value in employee ownership, such trends will not stop anytime soon.

Conclusion

The employee-owned trust model is a long-term and employee-centered alternative to traditional business ownership. By enhancing workplace morale, creating long-term security and offering financial incentives, EOTs stand as a powerful alternative for UK companies. With a growing number of companies looking at taking a glimpse at this model, a future for employee ownership looks brighter, paving the way for a more resilient and entrepreneurial future for companies.

For business leaders in search of a succession model that is in tune with values and promotes long-term success for their business, an EOT is a deliberate, economically prudent and ethical solution. With added support and documented success, employee ownership is transforming UK companies’ future, offering workers a meaningful voice in workplace success.