How does selling a company to an EOT work?

In outline, the shareholders sell a controlling interest of the shares to a newly established trust for them to be held on behalf of all the employees. The main steps are:

• the company is valued for the purposes of the transaction;
• the EOT is set up and trustees are appointed;
• tax clearance is obtained from HM Revenue & Customs;
• the EOT buys the shares, funded by cash from the balance sheet and a vendor loan (with third party finance if required);
• the loan is repaid over time from the company’s future post-tax profits.

The EOT must hold a controlling interest of more than 50%, including the rights to votes, dividends and capital. Read more on Selling to an EOT in our blog.