Employee Ownership Trusts (EOT) – no longer a niche ownership structure

Many of you will already be aware of what an EOT is and, in fact some of you reading this may already be in an Employee-Owned business. We will not discuss what an EOT is today, but there are articles on the RIBA website that we have written that explain what EOT’s are and how they work if you need further information on them.

Briefly, EOT’s were set up in response to a government review led by Graeme Nuttall OBE who is a lawyer at Field Fisher. He made a series of recommendations to the Government detailing how they could encourage employee ownership and the EOT was created out of this review. EOT’s come with some particularly attractive tax advantages which were set out in the Finance Act 2014.

So, EOT’s, in their current form have been around since 2014 but employee ownership and trust have a long history in the UK. Unfortunately, not many businesses were using the old employee benefit trust route to employee ownership for various reasons including not being aware of them and there being major disadvantages to shareholders selling into an EBT. The EOT was created to ensure that more people used the employee ownership route than had been doing so over the last few hundred years.

So, has it been a success?

The answer to that question is a resounding yes.

According to recent research, last year, over 20% of all private company sales in the UK were into an EOT structure, either wholly or majority owned by the EOT. This, from a standing start in 2014, is quite remarkable.

Research carried out by the White Rose Centre for employee ownership (based at the University of York) shows that 250 new employee ownership businesses were created from January 2020 to June 2021.

We at Whitemoor Davis can see this ourselves, the number of EOT conversions and enquiries we are dealing with has increased significantly since January 2020.

The EOT model is particularly attractive to professional service firms and Architects are no exception. A recent RIBA benchmarking survey showed 79 architectural practices were 100% employee-owned and a further 31 had employee trusts with a smaller shareholding. There are many more Architectural practices which are EOT’s that did not take part in the benchmarking survey.

As we can see the EOT has been a very successful model for the UK and is a real success story for the economy and the government.

Unsurprisingly other countries are starting to look at the UK due to the success of the EOT model and are thinking about introducing their own versions. EOT’s will work particularly well in countries that, like the UK, have well-established legislation around trusts.

We have seen EOT’s established in USA and Australia and Canada and Denmark will soon follow. Graeme Nuttall writes in a recent publication How the UK is encouraging employee ownership internationally by Fieldfisher.

“Propelled by the employee ownership trust (EOT) UK employee ownership has grown significantly over the last 10 years. Employee ownership is now a mainstream UK business model. This achievement is encouraging other countries to do more to promote employee ownership and, in particular, to examine whether to replicate the EOT's success. The United States (US) has added the EOT to its models of employee ownership. Australia has its first Australian-headquartered EOT. Other countries are reviewing what they can do, with the Canadian Government leading the way but Denmark is catching up. The next 10 years could see EOT ownership, or its equivalent established as the standard model of employee ownership internationally for business successions.”

In conclusion then, the EOT which at first has been treated with a little scepticism has, within a very short time frame, become one of the main models for succession planning within all businesses within the UK.

We, at Whitemoor Davis have advised on many EOT conversions and continue to help Architects and other businesses transform their ownership structure. If you would like to consider transferring to an EOT or require any further information, please do not hesitate to get in touch.

Thank you Michael Holmes for providing this article.

Please contact Whitemoore Davis for further information.