Employee Ownership Trusts. A Thread
Discussion
Occasionally when I mention I work for an Employee-Owned company people ask about it. Sometimes there's a founder on PH looking at succession planning and, although I was an employee not a founder, we found the EOT structure which was the route we took. It's a lovely concept, so if you've done it, are thinking of it, want to know more about it - use the thread.
Our story is a few posts down.
Original post...
I'll update this when I can - we're a small company (10-15 employees), ~£1mil turnover, nicely profitable. Thought we'd be too small for an EOT - but 2 years later we made it stick.
ETA: Didn't want to derail sickrabbit's post about selling a business more than we have already!
Our story is a few posts down.
Original post...
I'll update this when I can - we're a small company (10-15 employees), ~£1mil turnover, nicely profitable. Thought we'd be too small for an EOT - but 2 years later we made it stick.
ETA: Didn't want to derail sickrabbit's post about selling a business more than we have already!
Edited by 22 on Wednesday 14th July 07:19
The coalition government came up with EOTs.
I even posted on PH for help/ideas back in the summer of 2017 when the supposed company sale was unraveling. Management buyouts etc were talked about but I don't recall anyone quite suggesting an EOT (altho I'm sure similar set me on the path to discovery). The thread was deleted as company possibly identified and I was just an employee then. A few folk also thought my motivations were selfish (trying to take it over for myself etc).
There were ~350 or so EOTs when we started the process, possibly into 4 figures now (still a tiny number really). Not sure on the impact of covid, but apparently over the last 15 years, shares in employee owned businesses have considerably outperformed those in the FTSE All-Share Index (not my claim).
I didn't join any association or similar for employee ownerships as felt they were aimed at bigger companies.
I will do a proper post when I can.
Postlethwaites solicitors held my/our hands through the process. Robert Postlethwaite spent a very generous amount of time with me when I was just an employee and trying to build something I could pitch to founders.
It spent a while just as an idea while two squabbling stakeholders found a path to settle. But this left me running things (reasonably well apparently) and EOT signed at end of 2019.
I even posted on PH for help/ideas back in the summer of 2017 when the supposed company sale was unraveling. Management buyouts etc were talked about but I don't recall anyone quite suggesting an EOT (altho I'm sure similar set me on the path to discovery). The thread was deleted as company possibly identified and I was just an employee then. A few folk also thought my motivations were selfish (trying to take it over for myself etc).
There were ~350 or so EOTs when we started the process, possibly into 4 figures now (still a tiny number really). Not sure on the impact of covid, but apparently over the last 15 years, shares in employee owned businesses have considerably outperformed those in the FTSE All-Share Index (not my claim).
I didn't join any association or similar for employee ownerships as felt they were aimed at bigger companies.
I will do a proper post when I can.
Postlethwaites solicitors held my/our hands through the process. Robert Postlethwaite spent a very generous amount of time with me when I was just an employee and trying to build something I could pitch to founders.
It spent a while just as an idea while two squabbling stakeholders found a path to settle. But this left me running things (reasonably well apparently) and EOT signed at end of 2019.
I've just bought this book. It seems to be very informative and a very easy read so far
https://www.amazon.co.uk/gp/product/0857197193/ref...
https://www.amazon.co.uk/gp/product/0857197193/ref...
22 said:
The coalition government came up with EOTs.
I even posted on PH for help/ideas back in the summer of 2017 when the supposed company sale was unraveling. Management buyouts etc were talked about but I don't recall anyone quite suggesting an EOT (altho I'm sure similar set me on the path to discovery). The thread was deleted as company possibly identified and I was just an employee then. A few folk also thought my motivations were selfish (trying to take it over for myself etc).
There were ~350 or so EOTs when we started the process, possibly into 4 figures now (still a tiny number really). Not sure on the impact of covid, but apparently over the last 15 years, shares in employee owned businesses have considerably outperformed those in the FTSE All-Share Index (not my claim).
I didn't join any association or similar for employee ownerships as felt they were aimed at bigger companies.
I will do a proper post when I can.
Postlethwaites solicitors held my/our hands through the process. Robert Postlethwaite spent a very generous amount of time with me when I was just an employee and trying to build something I could pitch to founders.
It spent a while just as an idea while two squabbling stakeholders found a path to settle. But this left me running things (reasonably well apparently) and EOT signed at end of 2019.
Robert is very good, worked alongside him on a transaction. He has also written a book on the subject. I even posted on PH for help/ideas back in the summer of 2017 when the supposed company sale was unraveling. Management buyouts etc were talked about but I don't recall anyone quite suggesting an EOT (altho I'm sure similar set me on the path to discovery). The thread was deleted as company possibly identified and I was just an employee then. A few folk also thought my motivations were selfish (trying to take it over for myself etc).
There were ~350 or so EOTs when we started the process, possibly into 4 figures now (still a tiny number really). Not sure on the impact of covid, but apparently over the last 15 years, shares in employee owned businesses have considerably outperformed those in the FTSE All-Share Index (not my claim).
I didn't join any association or similar for employee ownerships as felt they were aimed at bigger companies.
I will do a proper post when I can.
Postlethwaites solicitors held my/our hands through the process. Robert Postlethwaite spent a very generous amount of time with me when I was just an employee and trying to build something I could pitch to founders.
It spent a while just as an idea while two squabbling stakeholders found a path to settle. But this left me running things (reasonably well apparently) and EOT signed at end of 2019.
So here’s the long version…..
I suppose you could say we're a posh garden maintenance company, immaculate gardens for the nicely-wealthy, on a reasonable scale and we take it very seriously (with some insanely talented people). But with few barriers to entry, possibly not an obvious company to be sold or move into employee ownership.
The founder had previously offered the company to the workforce as more of a typical management buyout but this opened Pandora’s box as the operational staff had no idea the profitability until then. The founder was drawing well into 6 figures annually while having more interest in other businesses of his (that this one had provided the money for).
So the company went up for sale and in the end a buyer was found, although I think the founder then realised the new chap (plenty of money, not much of a clue) would need help.
I’m a friend of a friend of the founder (without knowing him) and started as a wingman to the buyer, I thought for maybe a year (I get bored easily!). I know nothing about gardening, but have taken companies and social enterprises and improved them (on a local scale).
I started late Feb 17. Incoming buyer had 22% of the company at that time, more equity transferred on an earnout. The founder acting as a consultant on a bonkers day rate while I took over more and more of his role.
A lot more to it than a few sentences but in August 2017 I was in Cyprus when the phone rang. It was the buyer saying he and the founder had properly fallen out and the deal was going to be undone. Cue much squabbling.
I was already largely running the company and thereafter the founder completely lost interest, ‘buyer’ nowhere to be seen. But the business thrived.
Stumbled on the EOT format online. Spoke to a few people then met Robert Postlethwaite in October 2017. He was very generous with his time considering I was just an employee. The founder did want an exit plan, but was still drawing £150k a year while I was running the business, he was in no rush!
Even running as we were seemed to be ok with the guys, but if we could push for an EOT it would give them something back.
The solicitors would act for the Ltd company so I was perhaps uniquely disadvantaged in negotiations etc, but I'm a stubborn so and so. Usually a founder would be looking at this rather than an employee pitching it.
Perhaps importantly for the founders out there, the price agreed for the company was pretty lumpy. EOT rules state you can’t overpay for a company but getting it valued wasn't difficult as there is so much variation in these things.
The price was about 4.6 of net - but based on the days before they needed to pay a manager. Quite a lot for an industry where any of the senior staff could potentially up sticks and take some high-value customers with them.
Worth remembering I had started as a temporary wingman and now I was facing an all-consuming role (which my personality needs - but they didn’t need to know that). A sensible package agreed - especially as I chose no equity.
I needed to persuade a founder that we would pay him less per month than he was drawing, but for a long time to come, to get to the agreed price - he sells tax free.
Even then the demands crept up and a few times I had to throw calculated toys out of prams to remind him this process relied heavily on me and without me there could be much unravelling - but I also needed him to be comfortable that I would see it through.
HMRC have to clear the sale, I think mostly to make sure the founders do relinquish control.
For us, 100% would be employee owned but there are options providing a controlling stake does so.
Legal fees for us were just north of £20k. It took a while, both for the founder and supposed buyer to settle, then to get it across the line.
I am now the only director of the trading company, with no equity. A larger company would probably have other directors from management and someone else from the workforce, perhaps appointed by an employee council. A ratio no greater than 2 directors per 5 employees. There was no one from the operational side at the time interested in being a director, this may change. I could have taken a small % of the company, but chose not to. I was the new kid on the block, some of the staff have been here years and years.
All the shares are held in trust. Three trustees (with a separate ltd co). The founder, me and an independent accountant/professional trustee.
We pay the founder from profits. An agreed and affordable amount per month and it truly gives me control. As we grow, that figure doesn’t change so we’ll have more and more of a slush fund under our control.
Having taken control in November 2019, we felt like we lost a year to Covid - we had some big contracts cancel in the space of 10 days which was scary. A planned move to a new industrial unit (that I’d built on a local farm) had to be cancelled with the uncertainty - and now unit rents and prices are bonkers high! The founder personally owns the unit where we are based. An option to buy it wasn’t taken at the time as he valued it excessively.
No one has left the workforce since we became employee owned, absence is very low - we’re struggling to find staff. We’re always fussy about the gardens we take on, but at the moment we can’t take on anything. A lady we just started for has waited nearly a year for a window of opportunity. Nice problems I suppose.
So many staff have given so much to this company, it was nice to see them so engaged with the new set-up. Some of them will be gone by the time the company is paid-for (as then there will be more surplus cash), but they’re already doing better and if we grow and continue to do well, they’ll do better still.
We paid bonuses of ~£1500 (tax-free, but NI payable) last year. That should be better this year (and ultimately can be up to £3600), but I’m also in control of wages and have improved the overall package where it was needed.
And, I’m really enjoying it - despite not really knowing the subject matter. I wondered if I would ‘get bored’ the minute the EOT was signed for, but it’s not happened yet!
I think being the only plate spinner is tough for this, perhaps too tough. I think we’re probably entry-level size for an EOT - more senior people I think would take some weight off. I have insurance policies so that if I drop dead the rest of the agreed price is paid off, and also there’s a slush-fund to recruit a new me, but I’m not sure who would do the recruiting!
So this was probably more about our company than EOTs, but happy to answer questions. Remember this was my first and only experience of these things - but I’d happily do it again in the future elsewhere!
I suppose you could say we're a posh garden maintenance company, immaculate gardens for the nicely-wealthy, on a reasonable scale and we take it very seriously (with some insanely talented people). But with few barriers to entry, possibly not an obvious company to be sold or move into employee ownership.
The founder had previously offered the company to the workforce as more of a typical management buyout but this opened Pandora’s box as the operational staff had no idea the profitability until then. The founder was drawing well into 6 figures annually while having more interest in other businesses of his (that this one had provided the money for).
So the company went up for sale and in the end a buyer was found, although I think the founder then realised the new chap (plenty of money, not much of a clue) would need help.
I’m a friend of a friend of the founder (without knowing him) and started as a wingman to the buyer, I thought for maybe a year (I get bored easily!). I know nothing about gardening, but have taken companies and social enterprises and improved them (on a local scale).
I started late Feb 17. Incoming buyer had 22% of the company at that time, more equity transferred on an earnout. The founder acting as a consultant on a bonkers day rate while I took over more and more of his role.
A lot more to it than a few sentences but in August 2017 I was in Cyprus when the phone rang. It was the buyer saying he and the founder had properly fallen out and the deal was going to be undone. Cue much squabbling.
I was already largely running the company and thereafter the founder completely lost interest, ‘buyer’ nowhere to be seen. But the business thrived.
Stumbled on the EOT format online. Spoke to a few people then met Robert Postlethwaite in October 2017. He was very generous with his time considering I was just an employee. The founder did want an exit plan, but was still drawing £150k a year while I was running the business, he was in no rush!
Even running as we were seemed to be ok with the guys, but if we could push for an EOT it would give them something back.
The solicitors would act for the Ltd company so I was perhaps uniquely disadvantaged in negotiations etc, but I'm a stubborn so and so. Usually a founder would be looking at this rather than an employee pitching it.
Perhaps importantly for the founders out there, the price agreed for the company was pretty lumpy. EOT rules state you can’t overpay for a company but getting it valued wasn't difficult as there is so much variation in these things.
The price was about 4.6 of net - but based on the days before they needed to pay a manager. Quite a lot for an industry where any of the senior staff could potentially up sticks and take some high-value customers with them.
Worth remembering I had started as a temporary wingman and now I was facing an all-consuming role (which my personality needs - but they didn’t need to know that). A sensible package agreed - especially as I chose no equity.
I needed to persuade a founder that we would pay him less per month than he was drawing, but for a long time to come, to get to the agreed price - he sells tax free.
Even then the demands crept up and a few times I had to throw calculated toys out of prams to remind him this process relied heavily on me and without me there could be much unravelling - but I also needed him to be comfortable that I would see it through.
HMRC have to clear the sale, I think mostly to make sure the founders do relinquish control.
For us, 100% would be employee owned but there are options providing a controlling stake does so.
Legal fees for us were just north of £20k. It took a while, both for the founder and supposed buyer to settle, then to get it across the line.
I am now the only director of the trading company, with no equity. A larger company would probably have other directors from management and someone else from the workforce, perhaps appointed by an employee council. A ratio no greater than 2 directors per 5 employees. There was no one from the operational side at the time interested in being a director, this may change. I could have taken a small % of the company, but chose not to. I was the new kid on the block, some of the staff have been here years and years.
All the shares are held in trust. Three trustees (with a separate ltd co). The founder, me and an independent accountant/professional trustee.
We pay the founder from profits. An agreed and affordable amount per month and it truly gives me control. As we grow, that figure doesn’t change so we’ll have more and more of a slush fund under our control.
Having taken control in November 2019, we felt like we lost a year to Covid - we had some big contracts cancel in the space of 10 days which was scary. A planned move to a new industrial unit (that I’d built on a local farm) had to be cancelled with the uncertainty - and now unit rents and prices are bonkers high! The founder personally owns the unit where we are based. An option to buy it wasn’t taken at the time as he valued it excessively.
No one has left the workforce since we became employee owned, absence is very low - we’re struggling to find staff. We’re always fussy about the gardens we take on, but at the moment we can’t take on anything. A lady we just started for has waited nearly a year for a window of opportunity. Nice problems I suppose.
So many staff have given so much to this company, it was nice to see them so engaged with the new set-up. Some of them will be gone by the time the company is paid-for (as then there will be more surplus cash), but they’re already doing better and if we grow and continue to do well, they’ll do better still.
We paid bonuses of ~£1500 (tax-free, but NI payable) last year. That should be better this year (and ultimately can be up to £3600), but I’m also in control of wages and have improved the overall package where it was needed.
And, I’m really enjoying it - despite not really knowing the subject matter. I wondered if I would ‘get bored’ the minute the EOT was signed for, but it’s not happened yet!
I think being the only plate spinner is tough for this, perhaps too tough. I think we’re probably entry-level size for an EOT - more senior people I think would take some weight off. I have insurance policies so that if I drop dead the rest of the agreed price is paid off, and also there’s a slush-fund to recruit a new me, but I’m not sure who would do the recruiting!
So this was probably more about our company than EOTs, but happy to answer questions. Remember this was my first and only experience of these things - but I’d happily do it again in the future elsewhere!
RegMolehusband said:
I'm in work at the moment but will absorb your excellent post this evening.
Based on your knowledge of EOTs, is a four employee company, including me, too small implement an EOT? I am the 100% shareholder and want to retire.
My son is one of the employees.
You'd have to check the rules, but nothing to stop your son retaining a %, provided a controlling stake moves into employee ownership. Possibly he would need to 'pay' for his equity (if the rest has an agreed value). I don't know if the 2/5 director/employee ratio means there has to be at least 5 employees? Possibly individual share ownership might be better (but effects your ability to sell tax-free, although entrepreneurs' relief maybe?).Based on your knowledge of EOTs, is a four employee company, including me, too small implement an EOT? I am the 100% shareholder and want to retire.
My son is one of the employees.
I'd speak to Robert Postlethwaite (or another specialist in the subject), I found lots of useful and helpful people while researching.
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