There are at least 1,650 EOT-owned businesses across the UK and the number is rising. There were an estimated 330 new EOBs (Employee-Owned Businesses) in the UK in 2023 – a growth rate of 30%.

The Yorkshire and East Midlands regions have been making a considerable contribution to the growing number of EOT transactions. Some of the businesses that have made the transition over the past year include:

• Crofters Foods
• Hudgell Solicitors
• Acceptcards

Employee-owned business models date back as far as 1929 with John Lewis being the oldest and most commonly cited. EOTs were launched in 2014 as a tax-efficient method of transferring the ownership of a company. There were a relatively low level of transactions in the first few years, but that has significantly changed since 2020.

We have spent some time with Debra Martin and Andrew Evans at Geldards to find out everything that there is to know about EOTs. We will be sharing our collective thoughts over the next few weeks in our EOT series of articles.

The number of employee-owned (“EO”) businesses has increased due to a number of factors, including:

• A greater understanding and knowledge of EOTs and why they may be a useful exit compared to a trade sale or MBO
• A wish for founders to protect their business legacy and reward employees for their loyalty by transferring ownership to an EOT
• The reduction in Business Asset Disposal Relief from £10m to £1m from 11 March 2020 and the fact that a sale to an EOT is free of CGT (provided the claim is made and all the qualifying conditions are satisfied)
• A desire for founders to find an exit after surviving the period during COVID-19 and the impact on business with no wish to go through a further period of business upheaval

Although EOTs were originally dominated by people centric businesses, such as consultancies and architects’ practices, companies transitioning to EO are now sector agnostic. Geldards have seen a range of different businesses transition, including manufacturers, construction companies as well as consultancies. A sale to an EOT has to be “right” for the company, the founder and the employees. The founder or shareholder has to accept that, even if they continue to run the company, they will have to answer to the EOT trustees which can be a difficult change in mindset for some individuals who may have established the business because they didn’t want to answer to anyone else. A sale to an EOT is not the panacea for every company – a company still needs a strong management team to run the business; operating by committee will not work.

Research published by the EOA has shown that EO businesses are more productive and more resilient in a downturn compared to non-EO businesses. Employees can benefit from the payment of an income tax free EOT bonus of up to £3,600 per year. Employees may feel more secure in their jobs and appreciate having an opportunity to have their voice heard in how the business is run. The company may benefit from a more engaged and committed workforce willing to go the extra mile in meeting customer or client demands. The shareholders can sell their shares free of capital gains tax including any deferred consideration payable over several years.

Pratap Partnership transitioned into an EOT ownership model in November 2023 (article here). We have joined the Employee Ownership Association and have spent time talking to some of the other EOBs across our region. We have already learned a lot about how our EOB can be successful for all our people. It is our objective to share our knowledge with other potential and existing EOBs and to help them with their key recruitment needs.