Award winning architects firm, Amin Taha transitions to an Employee Ownership Trust
Amin Taha’s founder wished to remain involved in the business but also to spend time on other projects. He had begun to consider long term succession and the sharing of ownership, inviting another director to become a substantial majority shareholder.
The company was a small and close-knit team of professionals and skilled support staff who worked together and shared knowledge and responsibility. The founder wished to encourage and reward this collegiate atmosphere and was concerned about the long term future of the firm. He began to consider employee ownership as a means of (1) giving an exit for existing shareholders and (2) to protect the long-term future of the company.
In particular, although the company tended to retain its employees due to the culture of the firm, an employee ownership structure would help to cement the culture with the ownership structure reflecting the way the company was run. RM2 spent time with the founder to understand his aims and to understand the corporate financial situation of the Company. RM2 recommended transferring all the shares to an Employee Ownership Trust (EOT).
The EOT controls the company. The trustees therefore have all the rights and responsibilities of any other controlling shareholder. But it is important to remember that shareholders do not run a company. A company is run by its directors who are running the company for the benefit of its shareholders. Where an EOT is the shareholder this means that directors are running the company for the benefit of the shareholders who are also the employees.
RM2 managed the transaction throughout, including project managing all the legal and financial issues surrounding the EOT. We managed the necessary tax clearances from HMRC to ensure that selling shareholders were within the capital gains tax regime, enabling them to claim full tax relief i.e. they paid 0% on their sale to the EOT.
The company established the EOT and chose two employees to be trustees along with the founder. Although the founder was happy to sell his shares for below market value, it was intended that the other shareholders received full value for their shares. The EOT structure made it possible for these two difference prices to be accommodated.
The EOT was funded by the company out of its profits. If the founder had wished to take the full value from his majority shareholding, the sale could have been structured to enable this to happen. RM2 has advised on structures allowing staged payments to the shareholders and has capacity to find external funding where this is appropriate.