Sold to an EOT – Who can be a trustee?

When you are considering selling your shares to an Employee Ownership Trust (EOT), thought will need to be given to how the trust will be run after the sale has completed.

Success of the trust will be important to you, as the trust will need to be generating profits to be able to satisfy payment for your shares. Success of the trust will also be important to your employees, as when the trust has paid you in full for your shares, the trust will be able to pay each employee a £3,600 income tax-free bonus each tax year (as long as the bonus is paid to all eligible employees on the same terms).

Trustees

After the sale has completed, the trading company will carry on in largely the same way as it did before the sale, and there is unlikely to be any change to the company’s operations and day-to-day activities. However, instead of the trading company being administered by yourself and the other previous shareholders, this role will be undertaken by the trustee company. This means that the trustee company will have responsibility for decisions at shareholder level, which can ultimately determine the direction and profitability of the company.

The trustees will be responsible for overseeing the trust’s operations, making key decisions, and ensuring compliance with legal and regulatory requirements, whilst also acting in the best interests of the employees.

The trustees of the trustee company therefore need to be chosen carefully, and prior to completion of the EOT, it will be your responsibility to nominate the individuals who you think will be a good fit for the role. When deciding who might be appropriate to take on the role of a trustee, you will need to consider who will have enough experience to be able to run the company successfully, whilst also listening to the employees and allowing them to voice their needs. Trustees therefore usually involve a combination of senior employees and professional advisors, as this allows a broad range of knowledge and experience.

Management team

The trustees will have ultimate responsibility for ensuring that the company is being well-led, in a way that maximises employee engagement and commitment. However, it is important to note that the role of the management team does not disappear. The difference in the role of the trustees and the management team therefore relates to responsibility for decision making at shareholder level (which will be with the trustees), and responsibility for the day-to-day running of the company (which will be with the management team).

Employees’ Council

Ensuring employee involvement is a key characteristic of EOTs, and for this reason, you may also consider the creation of an Employees’ Council, which is a representative body elected from the employees. Creation of an Employees’ Council can be particularly useful in larger companies, to ensure continued employee involvement and engagement.

The powers of the Employees’ Council include appointing and removing trustees, this ultimately ensures that the employees are able to have a say in how the company is run, and that the employees’ views are not over-looked by trustees who are not considering the requirements of the employees as a whole. The trustees must also consult the Employee Council before any voting rights are exercised in relation to the company – again, this ensures the employees have a right to participate in key decisions.

It is therefore important that careful consideration is given to how the trust is run post-completion to ensure that regulatory requirements are met.

If you require more information on trust composition post-completion, please contact sophie.protheroe@hc.law