Should you entertain an Employee Ownership Trust?

By Toby Walker

Associate Solicitor

19 August 2025

Insights News

With the recent news of The Entertainer, the UK’s largest toy shop chain, becoming an Employee Ownership Trust (“EOT”) by the end of September, you may be asking (i) what is an EOT? and (ii) could I sell my company to an EOT?

What is an EOT?

An EOT, being a type of Employee Benefit Trust, allows the existing shareholders to transfer more than 50% of the ownership of the company to the employees on terms that are often, when done correctly, seen as a win-win for both the outgoing shareholders and the employees.

Selling to an EOT will often be seen as an attractive route for the outgoing shareholders as they can potentially qualify for a 0% CGT rate on the sale, whilst protecting the company’s culture and legacy – the latter being a key reason for Gary Grant & the Grant family when considering selling The Entertainer to an EOT.

Additionally, the employees are not only able to claim that they indirectly own part of the company in which they work (which may prove to be an incentive), they are also able to benefit from annual tax-free bonuses (currently up to £3,600), a fairer share of future profit and more input in key company decisions.

Could I sell my company to an EOT?

Selling your company to an EOT may make sense for a variety of reasons – maybe there is no obvious third-party buyer or you are keen to protect the culture and legacy you helped build. However, before jumping at the EOT route, it would be advisable to have an open discussion with the senior / management team in the first instance as it’s one of a few viable options (e.g. a management buy-out (“MBO”) could be more practical).

Provided that certain conditions are met, almost any trading company may be sold to an EOT – the main rules for outgoing shareholders to consider are:

• the company must be trading (or the holding company of a trading group).
• the EOT must acquire more than 50% of the company’s shares and must maintain the controlling interest post-sale.
• all employees must be eligible beneficiaries (variations allowing for salary/ length of service etc.)
• the outgoing shareholders can’t retain control of the company (either through controlling the EOT or accounting for more than 40% of the workforce).

As with all sellers, the outgoing shareholders will be wanting to maximise the sale price received. However, the trustees of the EOT will need to ensure the price paid is not more than market value. Therefore, to find the “right” price, it would be sensible to obtain an independent valuation. Outgoing shareholders should also remember that they are able to benefit from not having to pay CGT at the time of sale or later, in the event there’s deferred consideration – which is can often be the case as the parties should seek to structure payments in a sustainable manner to ensure the business continues to invest and grow post-sale.

As we have seen with the proposed sale of The Entertainer, EOTs are becoming an increasingly popular exit route, especially for owners who wish to reward their employees for being the heart of the business.

If you would like to find out more, please contact our Corporate & Commercial team here. They would be happy to discuss the contents of this article and any relating questions you may have.

Disclaimer: General Information Provided Only
Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.