Employee Ownership Trust

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November 21, 2024

by a searcher from University of Cape Town - Graduate School of Business in London, UK

Does anyone have real scars from buying an EOT-owned business ? I am looking for an experienced view .

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Reply by a professional
from Lancaster University in London, UK
Hi Donald, I assume that the effective rate is so high because there will be capital gains on the sale for the trustee plus income tax and NICs for the employees? Agree that this is not very beneficial for the employees but there is a slight advantage for the buyer in that remaining managers are still incentivised post sale. A sale to another EOT would likely avoid the tax consequences but as it doesn't realise any gain for employees (and is probably not how a buyer would want to structure an acquisition), this is unlikely to be a solution. Really an owner selling to an EOT should have considered these issues and warned employees at the time of the EOT sale.
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Reply by a searcher
from Indiana University at Bloomington in Carmel, IN, USA
Haven't acquired an EOT (or ESOP in the US), but lots of ESOPs sell in the US every year. It can be done but depends on the management and trustee have to believe it is the best outcome for the employee owners vs. keeping the business employee-owned going forward. This can come in the form of an "offer they can't refuse" or more commonly, employee-owned companies sell because they can't afford the future projected cash distributions to former participants. I know EOTs in the UK work differently than ESOPs but the principles might apply.
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