Employee Ownership Trusts (EOTs) are becoming increasingly popular among business owners looking to transition their companies to employee ownership. EOTs offer several benefits to business owners and employees, including increased employee engagement, improved productivity, and reduced employee turnover. In this blog post, we'll look closer at how an EOT can change how you run a business and the benefits of working with Tungsten Corporate Solutions to establish an EOT for your company.

What is an EOT?

An EOT is a type of trust that allows a business to transition ownership to its employees. The belief is set up by the business owner(s) and is funded by the sale of shares to the trust. The trust then holds the claims for the employees, who become beneficial company owners. The trust is managed by trustees appointed by the business owner(s), who must act in the best interests of the beneficiaries (i.e., the employees).

How can an EOT change the way you run a business?

1. Increased Employee Engagement

When employees become company owners, they have a greater stake in its success. This can lead to increased engagement and motivation, as employees are likelier to take pride in their work and feel a sense of ownership over their roles. In addition, employees may be more willing to take on additional responsibilities or work longer hours, as they have a vested interest in the company's success.

2. Improved Productivity

Engaged employees are more likely to be productive, and an EOT can help to foster this engagement. In addition, when employees are company owners, they are more likely to take a long-term view of the business and focus on its success over time. This can lead to improved productivity, as employees are more likely to identify and address issues hindering the company's success proactively.

3. Reduced Employee Turnover

Employee turnover can be a significant cost for businesses in terms of recruiting and training new employees and in terms of lost productivity. An EOT can help to reduce turnover by creating a sense of loyalty and commitment among employees. When employees are company owners, they are more likely to feel invested in its success and are less likely to leave for other opportunities.

4. Tax Advantages

Several tax advantages associated with an EOT can benefit both the business and the employees. For example, when business owners sell shares to the EOT, they can claim a tax deduction on the sale price. In addition, when the trust distributes profits to the beneficiaries (i.e., the employees), those profits are tax-free up to a specific limit.

5. Succession Planning

An EOT can be an effective tool for business owners transitioning company ownership. By selling shares to the trust, the business owner can gradually reduce their stake in the company while maintaining a degree of control over its management. This can help ensure a smooth ownership and management transition over time.

Working with Tungsten Corporate Solutions

Establishing an EOT can be a complex process, and working with an experienced advisor who can guide you through the process is essential. Tungsten Corporate Solutions is an accountancy firm based in South Wales specialising in helping businesses establish EOTs. Tungsten's team of experts can help you with every step of the process, from structuring the trust to identifying the most tax-efficient way to sell shares to the trust. In addition, Tungsten can provide ongoing support and advice to ensure that your EOT is functioning effectively and delivering the intended benefits.

Another significant benefit of an EOT is its impact on employee morale and retention. Since the employees are now part-owners of the business, they are more likely to feel invested in its success and have a sense of ownership and pride. This, in turn, can lead to increased loyalty, motivation, and productivity. It also helps to attract new talent to the company who are looking for an employer that values employee engagement and empowerment.

Moreover, an EOT can also be beneficial from a tax perspective. For example, when the company's ownership is transferred to the EOT, the transaction is usually tax-free, which means that the company and the employees do not have to pay any capital gains tax on the transfer. In addition, any dividends paid to the employees through the EOT are tax-free up to a specific limit, providing a significant tax benefit to both the company and the employees.

At Tungsten Corporate Solutions, we specialise in helping businesses implement EOTs and can provide various services to support the transition. Our team of expert accountants and business advisors can assist with the company's valuation, the creation of the EOT trust, and the transfer of ownership. We can also provide ongoing support and advice on trust management, tax planning, and compliance with legal requirements.

In conclusion, an EOT can be a game-changer for businesses, benefiting the company and its employees. By transferring ownership to an EOT, businesses can create a more engaged and motivated workforce, improve productivity and profitability, and secure the company's long-term future. At Tungsten Corporate Solutions, we are committed to helping businesses navigate the complexities of an EOT and can provide the expert support and guidance needed to ensure a successful transition. Contact us today to learn more about our EOT services and how we can help your business thrive.