Employee Ownership Trust: The Pros & Cons

These days, many business owners and shareholders are utilising employee ownership trusts. This could be used when they are moving on to a new challenge or retiring, but it can also be used as an effective way to empower and incentivise the workforce.

This article will look at the pros and cons of an employee ownership trust so that you can make an informed decision.

What is an Employee Ownership Trust?

Essentially, this is when all employees have a significant stake in the business. This should include both owning shares and having a say in how the business is run, such as working with trade unions or having employee directors on the board.

This can benefit both the business and the employees, but an employee ownership trust can also be complex to set up, so it is always worthwhile discussing with an advisor first.

The Benefits

There are many benefits to an employee ownership trust. From a business standpoint, it can protect the future of the company by ensuring that the right succession is in place.

In addition to this, giving a stake to employees will help them to feel empowered and can improve performances as well as help to bring new and diverse viewpoints to the table.

An employee ownership trust often reduces employee turnover, helps to attract new talent and creates a positive workplace atmosphere. Additionally, when you sell to an EOT, you will not have to pay any capital gains tax.

For employees, you obviously have greater control and a voice in the business that you work for. In addition to this, they will also have a financial stake in the business and owners can grant them a bonus of up to £3,600 (tax-free) each year.

The Drawbacks

There are also drawbacks to consider. Obviously, it involves giving up some control and you need to have faith that your employees will use their power in the best possible way and act with good conduct.

Additionally, money from an employee ownership trust is paid over time as opposed to immediately as you would get with a general market sale. It can also be challenging to determine the value of the organisation and the funds that the shareholders will receive.

There is a lot to consider with an employee ownership trust, but it is something that is always worth considering and can work out very well for many businesses and the employees that work there.