Employee ownership trust solicitors

An employee ownership trust (EOT) structure allows existing business owners to either totally exit, or take a step back from, their business and transfer shares in the company to a trust, which holds them for the benefit of the employees as a whole. If you are interested in transferring your organisation into shared ownership as a form of succession planning, JMW’s experienced corporate team can help.

We excel in advising client businesses on the legal and commercial issues surrounding EOT transactions, and can advise you on whether or not this approach will work for you under the current legal regime. While there were previously tax benefits to this approach, the position changed in 2025, and businesses should carefully evaluate whether an EOT is the right approach for the sustainable growth and long-term success of their organisation. 

Our specialist EOT team provides exceptional legal services in this area, and if you decide to move ahead, we have the experience and connections to assist at each stage of the sale and transition process to ensure that it is completed efficiently and the interests of all stakeholders are protected.

Find out more about how the corporate team at JMW can assist you by calling us on 0345 872 6666. You can also complete our online enquiry form to request a call back at a convenient time.

How JMW can help

JMW's corporate team is a member of the Employee Ownership Association and has gained expertise in supporting many business owners to make a successful transition to an EOT model. We offer the following services related to employee ownership trusts:

• Advising on pre-transaction reorganisations or restructuring
• Assisting with the incorporation of the employee ownership trustee
• Drafting the trust deed to set out a management structure for the trust and clarify the role of the trust and employees' voices in the company's management
• Drafting the documents to effect the transfer of the shares to the employee ownership trustee
• Advising on an exit strategy for business owners and managing directors who wish to use this opportunity to withdraw
• Drafting constitutional documents to manage the relationship between the trust, the founding shareholders and the company itself going forward
• Conducting extensive due diligence on the potential impact of the transition on the business

JMW’s corporate team has assisted a number of companies in putting in place an employee ownership trusts structure. By working with your tax advisors, we ensure that transactions are progressed efficiently and in line with HMRC’s requirements.

Our solicitors have been recognised by both the Legal 500 and Chambers and Partners for the quality of their corporate services. Almost 30% of our business comes from existing clients with whom we have long-standing relationships, while more than 70% of our work comes from new clients and referrals. Many members of JMW's team also have practical experience in building businesses, and this combination of expertise allows us to anticipate and address challenges before they arise.

Meet our team

JMW's experienced corporate law team can help business owners to determine whether an EOT model aligns with their goals, the legal requirements involved in transferring ownership and the other key considerations of the EOT process. With years of experience in this area and a strong track record of success, we offer innovative solutions to the challenges of exit planning and indirect ownership.

Case Studies

JMW Solicitors Advises I-COM on Becoming Employee-Owned

I-COM appointed JMW to provide advice on the transaction structure and handle the establishment of the EOT after hearing of their involvement in a similar deal for recruitment and payroll services firm, Kinetic.

How does an employee ownership trust work?

An employee ownership trust owns a company indirectly for the benefit of the organisation's employees. Rather than employees each buying shares themselves (under a model called direct share ownership), the trust acquires and holds a controlling interest in the company on their collective behalf.

In practice, the process usually works as follows:

1. An employee ownership trust is established. Trustees are appointed to hold the shares and exercise their rights for the benefit of the company's eligible employees. Under the current rules, the trustees must meet specific UK residence and independence requirements.
2. The existing shareholders sell shares to the trust. To qualify as an EOT, the trustees generally need to acquire more than 50% of the company's ordinary share capital, voting rights, distributable profits and assets available to shareholders on a winding up. A market value must be agreed for the shares and the trustees must take reasonable steps to make sure the amount paid does not exceed market value.
3. The purchase is funded. The EOT may have some funding available immediately, but it is common for some or all of the purchase price to be deferred and paid to the former shareholders over time. The company can make contributions to the EOT from future profits, which the trustees can then use to meet deferred payments.
4. Employees share in the benefits of ownership. The company continues trading normally and the board continues to run the business, while the trustees exercise their shareholder rights and must act for the benefit of the employees collectively. They must broadly operate for the benefit of all eligible employees on the same terms, although benefits can sometimes vary according to factors such as pay, length of service and hours worked. Companies controlled by qualifying EOTs can also pay employees qualifying bonuses free of Income Tax, although National Insurance contributions still apply.

The former shareholders do not necessarily have to leave the business immediately. They may continue as directors, employees or minority shareholders. However, former owners cannot retain control of the trust itself in a way that undermines the EOT's independence.

What is the role of an employee ownership trust?

The EOT sits between the company and its employees. Its main role is to hold a controlling shareholding in the business on behalf of the workforce and exercise those shareholder rights for their collective benefit. For a qualifying EOT, the trustees must generally hold more than 50% of the company's ordinary share capital and voting rights, as well as rights to more than 50% of distributable profits and assets on a winding up.

The EOT does not normally run the company's day-to-day operations, which remain the responsibility of the company's directors and management team. Instead, the trustees act at a shareholder level, which depend on the company's governance arrangements, but can include voting on important shareholder matters, appointing or removing directors and holding the board to account.

How does a company transition to an employee-owned business?

To manage a transition to employee ownership, a business must first determine whether it is a suitable structure. The existing owners should consider their objectives, the financial position and future profitability of the company, for which professional legal, tax and financial advice will usually be required.

The employees will create a trust managed by trustees who will ultimately hold the shares for the benefit of eligible employees, and there are further legal obligations that must be met in the establishment of the trust and eligibility requirements for trustees.

An independent valuation should then be obtained to establish a market value for the shares, as EOT trustees must take reasonable steps to make sure the price they pay does not exceed market value. Once the sale of shares is agreed and funding is in place, the business owners can complete the transaction and transfer control to the trust, at which point the trustees become the controlling shareholder.

Finally, the business must establish new governance arrangements. The former owners may remain involved as directors, employees or minority shareholders. The structure must satisfy rules designed to prevent former owners from retaining control of the EOT itself, but keeping directors in their positions can make the transition more straightforward. The board usually continues to manage the company's day-to-day operations, while the EOT trustees exercise the rights attached to the controlling shareholding.

The aim is to give employees a meaningful stake in the business and promote engagement, not only to take advantage of the tax benefits associated with an employee owned structure.

Q

Do employees control business decision-making?

A

While employees benefit from the ownership structure, they do not usually control day-to-day business decisions directly under an EOT. The board and senior management team generally continue to run the company.

With that said, employees may have a greater voice through mechanisms such as employee councils, representatives or employee directors, while the EOT trustees exercise shareholder rights on behalf of the workforce as a whole.

Q

What are the benefits of an employee ownership model?

A

An employee ownership model can offer benefits for both the business and its workforce, and should be a key consideration in succession planning.

• It can give existing owners a structured way to exit while preserving the company’s independence and culture by passing control to employees, and this can also encourage greater employee involvement, commitment and long-term thinking.
• Transferring ownership without selling the company to a competitor, private equity investor or other external buyer supports staff retention
• It enables decisions based on the sustainable performance of the business rather than short-term shareholder returns.
• Employees may benefit from the company’s success through profit-sharing or bonuses.
• In qualifying EOT-owned companies, certain employee bonuses also receive favourable tax treatment. The sale of shares to an EOT may also qualify for relief on the associated Capital Gains Tax (CGT), which can make it more cost-effective compared to a traditional sale.
• Many owners see employee ownership as a way to protect the identity and ethos of the business after they relinquish control, or a chance to empower employee engagement give staff a genuine stake in the company's financial performance and overall success.

Even with these benefits in mind, an EOT is not suitable for every company, and the need to fund the transition, maintain appropriate governance arrangements and balance the interests of employees, trustees, directors and any remaining shareholders must be considered.

Q

Is Capital Gains Tax relief still available?

A

An employee ownership trust can offer significant tax advantages, but the position changed substantially in November 2025. A qualifying sale of shares to an EOT can receive 50% Capital Gains Tax relief for the selling shareholder, with half of the gain exempt from CGT and the other half taxable under the normal CGT rules. Business Asset Disposal Relief and Investors’ Relief cannot be claimed on a disposal where EOT relief is claimed.

An EOT-owned company can pay qualifying bonuses of up to £3,600 per employee each tax year free of Income Tax. The exemption does not extend to National Insurance contributions, and the bonus scheme must meet statutory conditions, but these Income Tax-free bonuses are often a key incentive for employee engagement.

To receive these benefits, the business, trust, shareholding and governance arrangements must continue to satisfy the EOT rules, and tax relief can potentially be lost or withdrawn if qualifying conditions are breached. For that reason, tax advice should normally form part of the planning before an EOT transaction is completed.