Succession planning before an employee ownership trust sale
An employee ownership trust (EOT) is often presented as the simple exit: no buyer to find, no due diligence of the usual kind, and a sale to people who already know the business. The part that gets less attention is who runs the company afterwards. In an EOT sale the founder is paid over several years out of the company's own profits, so the founder's money depends on the management team they leave behind.
Why leadership matters more in an EOT than a trade sale
In a trade sale, most of the price is usually paid at completion and the buyer brings its own management. In an EOT, the trust typically pays a small amount up front and the rest as deferred consideration funded by future profits, often over five to ten years. If the business struggles after the founder steps back, those payments slow or stop.
That makes the management team the main security the founder has. Lenders who fund part of the price, and the EOT trustees, will ask the same question.
The tax position has changed
For disposals from 26 November 2025, only half of the gain on a qualifying sale to an EOT is exempt from capital gains tax. The other half is taxed at the normal rates. Before that, the whole gain was exempt. The Finance Act 2025 had already tightened the rules: trustees must be UK resident, the former owners and people connected to them cannot control the trustee board, and trustees must take reasonable steps to make sure the price does not exceed market value.
The result is that an EOT sale now has to stand up on commercial grounds, and the relief is a smaller part of the case than it was. A credible management team is part of that case. Take specialist tax and legal advice on any specific transaction.
What the post-sale team needs
At a minimum, an EOT-owned business needs:
- A managing director who is not the departing founder and has the authority to run the business. Where the founder stays on during the transition, their role and end date should be agreed before the sale.
- A finance lead capable of managing the deferred consideration schedule, the company's cash flow, and reporting to the trustees.
- Operational leadership in whatever area the founder personally covered, whether that is sales, technical delivery or production.
Many founder-led businesses have one of these roles filled internally and need to recruit for the others. The EOT structure can help with recruitment, because employees benefit from ownership, but it does not replace the need for experienced leaders.
Governance after the sale
EOT-owned companies usually have two boards: the trustee board and the company board. The trustees represent the employees' interest and hold the shares. The company board runs the business. It is common to appoint an independent trustee and at least one independent non-executive to the company board. Getting these roles filled with capable people is part of the succession plan, and they are often best recruited at the same time as the executive team.
Timing
A practical sequence for a founder considering an EOT:
- 24–36 months out. Decide whether an EOT is the preferred route against a trade sale, private equity or a management buyout. Identify the gaps in the leadership team.
- 18–24 months out. Recruit the MD or other senior hires, so they have a full year of trading behind them before the sale.
- 6–12 months out. Valuation, trustee appointments, funding structure and HMRC clearance.
- After completion. A defined handover period for the founder, then a clear exit from executive duties.
See our page on family business succession for how each exit route compares, and succession recruitment for how we run the leadership hires.