Scottish businesses could benefit from becoming Employee Ownership Trusts, explains Shawbrook
Since the legal concept was first introduced by the Government in September 2014, Employee Ownership Trusts (EOT) have become an increasingly popular option for exiting owners due to the wide range of benefits they can provide to a business, its exiting shareholders, and its employees.
Research released earlier this year by Co-operative Development Scotland* showed that, at the time of reporting in May 2022, there were 146 Scottish-registered employee-owned businesses, which had a combined turnover of £691m and employed more than 5,350 people.
What is an EOT?
An EOT allows exiting owners the ability to pass ownership of a business on to its employees. Similar to buy-outs, they are often funded through deferred consideration based on future profitability, which means that shares are sold by the shareholders on a deferred payment basis, with instalments being paid over a period of time.
Benefits of an EOT
One of the biggest draws of an EOT is the benefits which are passed onto existing employees who will, indirectly, own the business and will collectively be beneficiaries of the trust, receiving financial benefits that would typically be given to shareholders. As well as more commitment, it can also drive improved employee engagement and input, and allow for tax-free bonuses of up to £3.6k per annum, all of which contribute to the potential for enhanced business performance and reduced staff absenteeism.
It's not just employees that can benefit though. An EOT allows existing directors to remain in the business and receive market-competitive renumeration post-sale, and original shareholders can maintain an interest in a business. Exiting owners are also able to retain a stake up to 49% of the share capital, enabling them to plan for the future, while facilitating a smooth, efficient transition. It also ensures business carries on as usual without the need to make any instant management changes or immediate business alterations which may cause significant disruption to a company.
How Shawbrook can support an EOT
At Shawbrook we have extensive experience supporting EOT transitions with a deep understanding of EOT principles and related market factors. We’ve seen demand for funding support in this area rise over the last two years, and now have over £30m of financing advanced in support of EOT transactions across the UK.
– Our facilities speed up the access to the necessary funds for the selling shareholders, and allow access to benefits such as:
– Fast-track ownership transition with upfront funding for the EOT whilst maintaining stability and cashflow in the business
– Quick decisions with short lines of communication direct to decision-makers
– Solutions which combine funding for the EOT buy out as well as the next stage of growth in the business
Case study
All of these factors were key to supporting a recent EOT facilitated by Shawbrook in which an award-winning tax advice company became 100% employee-owned in a sale supported by a multi-million-pound Commercial Loan facility
YesTax, which is based in Sheffield, offers specialist tax relief, including research and development, patent box, and capital allowances. It is also one of the only firms in the UK to offer expert guidance on video games tax relief.
Since it was founded in 2019, YesTax has advised more than 1,500 companies and delivered tens of millions of pounds in savings for its clients, creating an industry-leading reputation.
The decision to take YesTax into an EOT was aimed at recognising and rewarding the hard work of its people, supporting long-term staff retention, and securing the future of the firm’s ethos, values and commitment to South Yorkshire.
Further information
Whatever a business’s strategic, financial or operational objectives, Shawbrook's experienced team can arrange funding for a wide range of scenarios, including acquisitions, buy-outs, restructures and EOTs. Working seamlessly alongside advisors, accountants, SMEs, sponsors and trusts, the team supports businesses to provide financial stability and a seamless transition throughout the funding process.
If you are considering an EOT for your business or advising a client on their potential transition to employee ownership, feel free to get in touch or visit www.shawbrook.co.uk/eot