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Employee ownership trusts (EOTs) ― the basics

An EOT is a discretionary trust that acquires and then hold a controlling interest in a company for the benefit of its employees. Sales of shares to EOTs are most commonly funded using future trading profits of the company or group. It is also possible to use bank borrowing to finance part of the purchase consideration. Interest can be charged on purchase consideration to the extent it is not paid up front. In addition, selling shareholders can take an arm's length salary for any work they will do as directors or employees after the sale.

Once the consideration has been paid in full, further profits of the business or gains realised on a future exit can be paid to the EOT and distributed to or otherwise applied for the benefit of employees.

Where a controlling interest in a trading company is sold to an employee ownership trust EOT and the necessary qualifying conditions are met, the sale of the shares of