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TLT advises businesses, business owners and trustees on all aspects of employee ownership, including planning the transition, implementing the sale of the business into employee ownership and supporting the business and the trust over the long-term to successfully navigate the opportunities and challenges of employee ownership.
TLT has been a leading firm active in the employee ownership sector for a number of years. Our specialist, and experienced, employee ownership lawyers have a diverse range of clients in England, Wales, Northern Ireland and Scotland. The team have advised on over 50 transitions to ownership by an employee ownership trust in Scotland alone.
Our employee ownership team provide insightful strategic direction to employee-owned businesses at every stage of their journey. We have led a number of the most high profile employee ownership transactions within the UK, including the transitions into employee ownership of Aardman Animations, UK Electronics Limited and Kinetics Controls & Innovation.
Moving to employee ownership is a significant decision and one that needs expert advice. We offer initial legal and planning advice, prepare the necessary legal documentation, and obtain tax clearances to facilitate the implementation of employee ownership. We also project manage the transaction to ensure a seamless transition and link clients to others locally who are involved in employee ownership.
From experience, we know that moving to employee ownership is just the start. We regularly act for a number of employee-owned businesses on a range of legal matters including restructuring, acquisitions, exits, equity and debt investments, reviewing constitutional documents, employment and governance advice and disputes. We have advised on sales of companies by Employee Ownership Trusts, which means our team has experience of the specific aspects of such transactions. In addition, we have recently helped clients with implementing EMI Option Plans and Company Share Option Plans for employee-owned companies.
We strongly believe in the benefits of employee ownership and are members of the Employee Ownership Association. We’re also a central part of the Employee Ownership Association network in the South West and in Scotland.
Date published
04 February 2025
Our experience
Advising the global leader of advanced, manufacturing-ready certified systems in the brewing, biotech, bio renewables, and biofuel industries, on the restructuring of their employee ownership structure.
Advising on all aspects of the creation of the Employee Ownership Trust and the transfer of the global engineered leak sealing solution, KCI group, into employee ownership.
Advising the Employee Ownership Trust and direct shareholders of this telecoms engineering and asset management company on its sale out of employee ownership to TXO.
Advising the shareholders of Contract Equipment Manufacturers, manufacturer of electronic assemblies, on the restructuring of the company and the sale of the UK Electronics group to an Employee Ownership Trust.
Advising an investor focused on opportunities in the employee-owned business sector, on its investment in Bright Ascension Limited, an employee-owned space-software technology provider, as part of a £2.25m funding round.
Advising on all structural aspects of the transaction for the shareholders of the FCA-regulated wealth managers on their sale to an Employee Ownership Trust.
Advising the building services engineering firm on their sale to an Employee Ownership Trust. We worked alongside Chris Heald (previous board member of the Employee Ownership Association) to implement the structural and legal aspects of the transaction.
Advising the travel brands group on all aspects of its transition to employee/charity ownership in an innovative project that established a unique underlying shareholder structure.
Employee Ownership Trusts: Frequently asked questions
An Employee Ownership Trust is a special type of discretionary trust which is established by a company, for the purpose of acquiring a controlling interest in that company.
The trustee of the Employee Ownership Trust holds the shares on the terms of the trust for the employees of the company, who are the beneficiaries of the trust. This means that the trustee must act in the best interests of the employees.
Following a sale to an Employee Ownership Trust, the day-to-day operation of the trading company continues to be carried out by the board of directors of the trading company with the trustee overseeing the board of directors and the overall business strategy.
There are a number of statutory conditions which a trust has to satisfy in order to qualify as an Employee Ownership Trust including:
A sale to an Employee Ownership Trust can offer the founders a way to exit their business whilst preserving the ethos, culture and values of their business and rewarding those who have worked to make it a success. In particular, a sale to an employee ownership trust can be a practical solution for family-owned or owner managed businesses considering long-term succession planning.
Founders selling their business to an Employee Ownership Trust can benefit from an exemption from capital gains tax on the sale of their shares if certain conditions are satisfied at the time of the sale and for a specified number of years following the sale.
No. The Employee Ownership Trust model is flexible so that as long as the Employee Ownership Trust acquires a “controlling interest” in the company, it is possible for the founders to retain a shareholding in the company. In order to acquire a “controlling interest”, the Employee Ownership Trust must acquire, broadly, more than 50% of the ordinary share capital and voting rights in the company.
Founders should consider carefully what proportion of their shareholding they wish to sell to the Employee Ownership Trust and note that if they don’t sell all of their shares to the trust in one transaction, they may not be eligible for the capital gains tax relief on a subsequent sale of the balance of their shares.
The employees will be the beneficiaries of the Employee Ownership Trust which means that, subject to certain conditions, they are eligible to receive an annual bonus of up to £3,600 per employee which can be paid to them free of income tax (although National Insurance contributions will apply).
As the Employee Ownership Trust is established for the benefit of the employees, it is usual for the employees to play an important role in determining how the company is run following the transition. Often the employees will elect one (or more) employees to act as trustee of the Employee Ownership Trust or, if the trustee is a company, to sit as a director on the board of directors of the trustee company. In addition, the business may establish an employee council so that the views of the employees can be taken into account by the board of directors of the company and the trustee in their decision-making.
In contrast to a third-party sale, in an employee ownership model the founders will typically continue to work in the employee-owned business (in some capacity) following the transition at least for a period of time, providing stability and reassurance to the employees.
Yes it is. In addition to the income tax free bonus which the employee-owned company can pay to eligible employees each year, employee share plans can play a crucial role in the retention and motivation of employees following the transition.
We have helped numerous employee-owned companies establish share plans for employees.
EMI options and CSOP options are both commonly adopted forms of HMRC tax-advantaged employee share incentive. These incentives work on the basis that an employee is granted a right to buy shares in their employer in the future at a price fixed at the date of grant. The price is usually the market value of the underlying shares at the date of grant. The employee may exercise the right to buy the shares at set vesting dates or when meeting set performance conditions, provided they remain in employment. Options are simpler to administer than plans that provide for the outright acquisition of shares and are risk free for employees since they don’t have to exercise their right to buy the shares.
There is a limit on the market value (at the date of grant) of the shares over which EMI options and CSOP options can be granted to an employee of £250,000 and £60,000 respectively and there are certain statutory conditions which must be satisfied in order for a company to qualify to grant these types of options.
Alternatively, the company may wish to consider establishing a growth share plan, which is a popular way to incentivise employees who are unable to grant EMI or CSOP options. Under a growth share plan employees acquire a new class of shares in the company and the new class is only entitled to participate in any future increase in the value of the business. The entitlement to future value only means that at the outset the shares are worth very little, meaning that the employee typically only pays a small amount to acquire the shares. Although growth shares are not an HMRC tax-advantaged form of share plan, they provide a similar tax outcome to EMI and CSOP options.
Care needs to be taken when implementing any share plan for an employee-owned company to ensure that the trust continues to satisfy all the conditions necessary for it to qualify as an Employee Ownership Trust. However, with careful planning, share incentives can be successfully implemented by an employee-owned company.
To read more, download our guides to EMI options, CSOPs and growth shares.
A number of changes to the rules relating to Employee Ownership Trusts were announced at the Autumn Budget 2024. However, there are only two changes which will affect Employee Ownership Trusts which were established before 30 October 2024. Those changes are a relaxation of the rules relating to the payment to employees of annual tax-free bonuses and a minor change to the information that a selling shareholder must provide to HMRC to make a claim for capital gains tax relief.
Several new conditions will have to be satisfied for a selling shareholder to qualify for capital gains tax relief where the sale to the Employee Ownership Trust occurs on or after 30 October 2024. These include:
In addition, the period within which the capital gains tax relief can be recovered from the selling shareholders if the conditions applying to the relief are breached post-sale will be extended to the fourth tax year following the end of the tax year in which the disposal took place.
We explore the changes in further detail in this insight.
If you are interested in discussing how a move to employee ownership could shape your business, get in touch with our employee ownership specialists below.
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