Looking for a business exit strategy that’s a win-win-win-win? An Employee Share Ownership Trust (ESOT) could be the perfect solution. It’s a brilliant way to transition out of your business while looking after your employees, maintaining your company’s legacy, and – bonus – getting some pretty nice tax benefits.
Sounds good, right? Here’s how it works and why it’s one of the best options.
What exactly is an Employee Share Ownership Trust?
An ESOT is a way for business owners to sell their company to their employees through a trust. Instead of selling to an outside buyer (who may change everything you’ve built), you’re keeping the company in the hands of the people who know and love it best – your team.
And the best part? Everyone benefits – the business, the employees, the community, and, of course, the exiting shareholders (that’s you!).
Let’s take a look at why ESOTs are such a game-changer for everyone involved.
Why an ESOT is great for the business
- Employees become more motivated and productive – When employees have a financial stake in the company’s success, they tend to work harder and care more. After all, they’re not just working for the business anymore – they’re working as part-owners of it.
- Tax-free annual bonuses – An ESOT can pay employees tax-free bonuses every year. Yes, you read that right – tax-free. That’s a pretty big incentive to keep things running smoothly!
- Better recruitment and retention – Attracting and keeping great employees is tough these days, but an ESOT makes your business more attractive to potential hires. People like working for companies that care about their future.
- Smooth succession planning – Think of an ESOT as a management buyout without the stress. It allows for a seamless transition while keeping the company independent and preserving its culture.
| Want to discuss an ESOT for your business? Get in touch for your free initial consultation at [email protected]. |
Why an ESOT is great for employees
- More money in their pockets – Employees can receive tax-free bonuses AND benefit from the company’s profits through their share ownership. That’s a pretty nice perk!
- A real say in how the business is run – Employees get a voice in the management of the trust, which often leads to better decisions and a stronger sense of belonging.
- Job security – Employee-owned businesses tend to be more stable and less vulnerable to takeovers. That means employees can enjoy greater long-term security, which, let’s be honest, is something we could all use more of.
Why an ESOT is great for the community
- The business stays local – Employee-owned businesses are far less likely to be sold off to big corporations or relocated elsewhere. That means jobs and economic stability stay within your community.
- Fairer wealth distribution – Instead of profits going straight into the hands of a few shareholders, an ESOT spreads the wealth among the employees who help make the business successful. It’s a great way to reduce income inequality while keeping the company strong.
Why an ESOT is great for You (the exiting shareholder!)
- Your business legacy is protected – Selling to an ESOT means your company stays in good hands. No corporate overlords coming in and undoing all your hard work.
- No Capital Gains Tax (CGT) – Yes, you read that correctly. Under current tax rules, selling to an ESOT means you don’t pay CGT. That’s a massive tax advantage compared to other exit options.
- A controlled and gradual exit – If you don’t have a clear successor but also don’t want to go down the trade sale route, an ESOT gives you a structured, controlled way to step back.
- Stay involved (if you want to!) – Just because you’re selling the business doesn’t mean you have to disappear overnight. The ESOT rules allow you to stay on as a director if you want to gradually transition out.
- You get a fair price – The ESOT rules require the business to be valued and sold at a fair market price, ensuring you get a proper return for all the hard work you’ve put in over the years.
Is an ESOT right for your business?
Overall, an Employee Share Ownership Trust can be a win-win-win-win for companies, employees, communities …and the exiting shareholder! However, while they are an amazing exit strategy, they may not be the right fit for every business. And that’s where we come in.
At JVCA, the friendly accountants, we help business owners assess whether an ESOT is the right move, guide them through the setup process, and make sure everything runs smoothly and tax-efficiently.
| Considering an Employee Share Ownership Trust as your business exit strategy?Email us at [email protected] for a free consultation. Let’s see if it’s the best option for you and your business. |
