Employee-owned businesses can thrive commercially, but they differ from traditional equity-based models. Rather than focusing on resale or short-term shareholder value, the emphasis should be on long-term sustainability through better team alignment, increased salaries, and enhanced benefits. Promising employees equity that may never be realised can cause dissatisfaction; instead, tangible rewards such as bonuses, healthcare, and insurance are key to motivating employees.
Employee ownership is a long-term strategy, not a quick financial gain. Shifting focus away from price earnings, multiples, and potential resales helps avoid distractions for management. While there are now nearly 2,000 employee-owned businesses in the UK (up from 1,700 – 2023), very few have been resold. Why?
Can an EOT Be Resold? Technically, an EOT cannot be sold at the Trust level, but it can sell shares in its trading company so yes, an EOT business can resale. However, this is very rare as key factors make such resales unappealing:
- Loan Repayment – The sellers’ loan note must be fully repaid before a sale, or their approval is required.
- Trustee Oversight – Trustees control the sale decision, prioritising employee interests over ex-sellers or management.
- Cultural Shift – Buyers are wary of transitioning an EOT back to a conventional structure.
- Tax Consequences – The tax regime is punitive to discourage resales. The capital gains tax (CGT) exemption is a deferral. Upon resale, CGT applies at the prevailing rate. Any remaining proceeds distributed to employees are subject to income tax, leading to a potential 80% combined tax charge.
Despite these challenges, a sale might still be worthwhile if there is significant value uplift and the loan note is nearly repaid. However, buyers may hesitate due to risks such as employee attrition after receiving substantial payouts.
In conclusion EOTs are not ‘true’ share schemes; they more resemble mutuals focused on long-term stability and employee benefits. Redirecting efforts toward improving team rewards, training, and business planning ensures that employee-owned businesses remain sustainable and grow without the distraction of shareholder value concerns. Like a home meant for living rather than investment, an EOT is an evergreen business designed to endure and thrive. Same business, better model.