/ Business / Selling Up? Why an EOT Could Be Your Smartest Move Yet

Selling Up? Why an EOT Could Be Your Smartest Move Yet

July, 2025

When it comes to selling your business, there’s a wealth of options, and opinions, available at every turn. Most business owners are aware of the most popular, mainstream routes available, including trade buyers and private equity, as well as management buyouts.

However, often overlooked is an option that offers compelling benefits for those who want to protect their business legacy and integrity, as well as for those who wish to reward loyal employees and ensure business continuity: Employee Ownership Trusts (EOTs).

First introduced in 2014, EOTs offer a tax-efficient way for business owners to sell a controlling interest in their organisation to employees, indirectly through a trust structure. Over the last decade, the interest and momentum around this model have grown. Over 1,400 companies across the UK have now adopted employee ownership, from sectors including professional services to architects, manufacturers, creative agencies and so many more.

We’ve experienced firsthand how powerful this model can be when aligned with the business seller’s ambitions and organisational culture. But like all exit strategies, an EOT is not a one-size-fits-all solution. So, it is vitally important that you understand the key principles, benefits and practical considerations to ensure you are fully informed, so you can assess whether it is the right move for your business.

What is an EOT?

EOT is a special kind of trust that enables a business to become indirectly owned by its employees. The trust acquires a controlling interest, typically more than 50%, in the business from the current owners(s), who are then paid via a structured deal, often funded by organisational profits over a period of time.

It is important to note that employees don’t purchase the shares themselves. Nor do they have to manage the business. Instead, the organisation continues to operate with its existing leadership team, while the EOT holds the controlling interest for the long-term benefit of employees as a collective.

EOT is a model that balances continuity and change: ownership passes on, but culture, values and leadership remain intact.

What makes EOTs an attractive option?

While there are many reasons and motivations for considering an EOT, the three most common we hear are:

Legacy protection – For many owners, their business is so much more than a financial asset. It is, more often than not, a life’s work and dedication. Selling to a trade buyer or a private equity firm might generate a healthy financial return, but it can also bring ongoing problems and issues, including job cuts and culture/values clashes. EOTs offer a seamless pathway to preserving the business and putting people first: maintaining high-quality services to clients, honouring the founder’s values and protecting the people at the heart of the organisation.

Employee engagement and retention – EOTs consistently perform well with regards to productivity, innovation and employee satisfaction. Why? Because when employees have a stake in the long-term success of an organisation, albeit indirectly, motivation increases. Under this structure, employees can receive income-tax free annual bonuses of up to £3,600. Yet, beyond this financial incentive, EOTs foster a strong sense of purpose and shared responsibility.

Tax efficiency – For qualifying sales, EOTs offer a significant tax benefit: Capital gains tax (CGT) on the sale proceeds. This means, subject to meeting HMRC’s conditions, the selling shareholders can pay 0% CGT on the disposal of their shares. Of course, tax shouldn’t be the main motivation for an EOT. But it can make a compelling difference when combined with a strong succession plan.

Understanding the EOT process

While every business sale is unique, a typical EOT transaction follows the roadmap detailed below:

Feasibility assessment – The process begins with a detailed business review, considering the financials and the long-term ambitions of the current owner(s).

Valuation and deal structure – A fair market valuation is agreed for the cost of the shares being sold. Commonly, this is based on sustainable earnings (EBITDA), and adjusted for specific sectors and business sizes, etc. The deal is typically structured with an upfront payment (if surplus cash is available) and deferred payments are funded by future profits.

Setting up the EOT – The trust is created and registered, with an independent board formed to oversee its interests. The trustee board tends to include an employee representative, an external trustee and the managing director/owner.

Legalities, regulations and tax compliance – The next part of the process involves working closely with both legal and tax advisers to ensure the correct and required documentation is in place and HMRC clearances are obtained.

Transparent communication and a seamless transition – A carefully managed and transparent communication plan helps explain and create a seamless transition to employees. It’s not simply a transaction, but a cultural shift, and clarity and authenticity are vital.

Is an EOT right for you?

EOTs work best for businesses that are profitable, stable and have a committed management structure in place who are focused on preserving the business model in the long term. They’re particularly beneficial where:

The owner/founder wishes to create a smooth exit without destabilising the business.
There’s no obvious trade buyer or interest from external investors.
The business has a strong culture and loyal employees.

Challenges to consider

Funding – EOTs are typically financed through future business profits, which requires confidence in the long-term cash flow of the organisation.
Governance – A newly established EOT introduces a fresh layer of oversight, requiring attention to detail and careful planning around board structures and decision-making procedures.
Cultural awareness and readiness – While employees don’t run the business, EOTs change expectations. Current owners must be ready to foster transparency and accountability, as employees become more invested and involved.

Looking ahead to the future

The landscape for selling your business is always changing. As more owners are now rightly looking beyond the highest bidder and considering the long-term impact of the decisions they make, EOTs are becoming more prominent and receiving the focus they deserve.

Yet, deciding to establish an EOT is not one to take lightly. While there are many perks, it isn’t a shortcut or a soft option. It demands rigour, planning and the right mindset, as one would expect from any business sale. But, for the right organisations, it’s a route that can deliver real value, financially, culturally and socially.

If you’re thinking about the next chapter for your business and how to exit strategically in the best interest of the organisation, EOTs are an option worth attention and understanding. Especially if you value people, culture and continuity.

After all, your business is more than numbers, spreadsheets and financials. For most, it’s a legacy. And with the right structure in place, that legacy can thrive, long after you’ve stepped back.

If you’re considering an EOT or want to further explore whether it could be the right option for your business, please contact Phil Kinzett-Evans directly, or speak to your usual UHY adviser.

We’ve supported businesses to successfully navigate the EOT journey, and we’d be happy to help and guide you through the process.