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Myths about Employee Ownership Trusts, Debunked

Myths about Employee Ownership Trusts, Debunked

Employee Ownership Trusts have been around for almost a decade, which is a comparatively short amount of time compared to other well-known trusts. Business owners are still grasping the rules, regulations, and meaning of an EOT. In order to avoid common mistakes that trip up business owners every year, this article will clarify some myths and misconceptions that surround EOTs.

Myth 1: Employee ownership is only suitable for certain types and sizes of business

A popular misconception about EOTs is that only businesses of a certain size are eligible. This is untrue. EOTs are surprisingly flexible and adaptable, allowing a large range of SME businesses to transition to employee ownership. When it comes to the legal process of an EOT, choosing a reliable and trustworthy accounting firm is key. They will guide you through the benefits, valuation, and funding needed to complete the process.

Myth 2: Employees have control over the company’s decision-making

Whilst employees potentially have more say about operations within the company in an EOT, the company still needs a strong, independent leadership team that makes the bigger business decisions. A trustee usually acts as the custodian of employee ownership. This is to make sure that staff don’t hold shares in their own name but become invested in the future of the company as stakeholders.

Myth 3: All of the Shares must be sold to the EOT

It is untrue that all shares must be sold to the EOT. In fact, current owners only have to transfer more than 50% of shares to the EOT in order to still reap the tax benefits associated with the shares. There are certain benefits to not selling 100% of shares, but some owners do because there are often direct share incentives offered by the company.

Myth 4: It’s highly complex and time-intensive

EOT sales are typically the smoothest, quickest option for a company! The main reason is that the buyer and seller have the same financial and business interests and they have access to all of the same information. If you have an excellent team of advisors on the board, an EO transaction can be one of the easiest exit structures as there are no unconnected third parties making matters complicated.

However, everyone is advised to research thoroughly what it means to be employee owned and the effects it can have on your business. Once the legal transaction is made, there’s no going back.

 

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