Dispelling misconceptions about selling your business to your employees

Last Updated on 22 January 2026

Since the Employee Ownership Trust (EOT) was introduced in 2014, RM2 has supported many owners seeking to transition their business to employee ownership, typically via an Employee Ownership Trust [EOT].

The number of UK businesses using EOTs continues to boom to such a degree that it’s impossible to state accurately how many EOT controlled companies now operate in the UK.  Best estimates suggest over 2,000, with even more companies that are wholly or partly owned by employees without an EOT being involved.

The increasing popularity of EOTs means that understanding of the process and benefits has grown significantly over the years. Nonetheless, some misconceptions persist.

To bring a little more clarity, we hope this article will dispel six common myths held by many business owners.

1. “I won’t get full value for my business.”

This isn’t necessarily true – but it’s very dependent on how you value your business.  For example, what value can you place on the legacy you hope to leave behind? Trade buyers may promise higher upfront sums, but they often plan aggressive cost-cutting post-acquisition, which typically includes job losses. Third-party sales can also be subject to conditional payments over a couple of years, and of course, gains will be subject to Capital Gains Tax (CGT) – though this may often attract Business Assets Disposal Relief for many sellers.

In contrast, because gains on sale to an EOT qualify for full CGT relief, and deferred payments (including interest) are spread over years, many sellers can still walk away with comparable cash, on a post-tax basis, albeit over a longer period. The difference in value between a trade sale and an EOT can be smaller than you expect once tax implications and other aspects are factored into the equation.

2. “I’ll lose control.”

Yes, this is true, as you’ll sell a controlling stake in your business to the EOT. But you can continue as a director of the business, or even choose to work in a different role after the transaction.  You can also sit on the EOT trust board to oversee the business during the early years of transition – although be aware that new legislation means that sellers can’t control the trust board (though this approach has been best practice for many years for most advisers).

Remember also that unless you’ve already got a very clear succession plan in train, the last thing the next generation of directors will want is for the founders just to walk away. Sellers will often play a fundamental role in guiding the business through the transition to full debt repayment, irrespective of the new ownership arrangements.

3. “My management team will miss out.”

By their design, EOTs are egalitarian and, in particular, enable an income tax free bonus to be paid to all eligible employees, benefiting equally or proportionally by pay, tenure or hours. However, there is nothing to prevent an EOT owned business from paying additional (fully taxable) bonuses to its staff on a discretionary basis.

Furthermore, it is possible to leverage executive incentives alongside the transition to an EOT to deliver a ‘hybrid ownership’ structure.  This means that your key managers can benefit from direct share ownership – including dividend payments and the potential for a capital return.

EOT businesses can operate all HMRC tax-advantaged schemes, even if the EOT company is technically under the control of another corporate body. Tax-advantaged share plans such as EMI, CSOP and SIP, all have their own qualifying criteria and can be used to reflect the value of individuals in building the business and post-sale.

4. “I don’t believe my employees are ready for the responsibility.”

Founders often worry that their people are not poised to step up and accept more responsibility for the long-term success of the EOT-owned business. But in our experience and evidence from numerous reports, teams usually thrive when empowered, particularly when senior management remains in place and there is a strong succession plan to support the next generation of leaders. Stepping back gradually, whilst retaining a board or trustee role early on, can ease the transition, keep clients happy and ensure founders can still be approached for support.

5. “It costs a lot to make it happen.”

This remains one of the major myths, but in reality, transitioning a business to an EOT is typically more cost-efficient than selling to a trade or private equity buyer. Of course, there will still be advisory and valuation fees, but because the process is generally smoother and far less adversarial, the costs are likely to be lower than a traditional third-party sale. Fewer vendor warranties will be required and you are working with an aligned buyer [effectively, your employees], which makes for a less stressful experience for all concerned. The costs will vary, with some advisors offering a fixed fee rate for smaller transactions.

In addition, once business owners have determined that the EOT route is best for the business, it’s rare for transactions to ‘fall through’, which is not uncommon when negotiating with third-party buyers.

6. “Recent tax and trustee rule changes undermine the benefits.”

Since 30 October 2024, some additional legislative requirements have come into effect – although the majority of these reflect previous best practice. The EOT must be UK resident and the trust board must not be controlled by the sellers (or people connected with them). In addition, the trustees must take reasonable steps to ensure they don’t overpay for shares.

A significant change is that CGT relief can now be withdrawn for up to 4 tax years post-transaction if EOT conditions lapse. In RM2’s view, this does not undermine the concept of the EOT transaction – rather, it is a practical step to formalise and tighten governance, making the model more robust for founders and employees alike.

If you are considering exiting your business by selling to an EOT, please download our factsheet to help understand what’s involved and the support we will provide. Then contact us via our contact form or email enquiries@rm2.co.uk if you would like to arrange a confidential discussion with one of our experienced team.