When Gary Grant, founder of the UK’s biggest toy chain The Entertainer, announced he was transferring 100% ownership of the business to his 1,900 employees, it made national headlines.
After more than 40 years at the helm, Grant wanted to step back without selling to a buyer who might dismantle the culture, values, and ethos he and his family had built. His answer was to create an employee ownership trust (EOT) where his stake in the business could be handed to his staff, giving them the ultimate say in The Entertainer’s future direction.
It’s a feel-good story, but it’s also a shrewd commercial move on Gary’s part. An EOT provides a structured, fair market value exit for owners while giving employees the chance to share in future profits. Far from being an act of charity, it’s a mutually beneficial transaction that, when done properly, can safeguard a business for decades to come.
In this short blog, we’ll look at the EOT model, its benefits and how to go about arranging one for your business.
What is an EOT?
An EOT is a structure in which the majority of a company’s shares (if not all) are held in trust for the benefit of its employees. The seller receives payment for their shares at full market value, typically funded by a payment on completion of the transaction (often using spare cash in the business at that point in time and/or finance raised by the company from a third party lender) with the balance paid on a deferred basis, often over a number of years, from future company profits.
It’s an increasingly popular route for owner-managed and family businesses and one that Gorvins has advised many different companies on over the years. In 2024 alone, 500 UK companies made the switch, with Gorvins supporting 1% of that number.
Why choose an EOT?
So why choose an EOT? For many owners, an EOT offers the best of both worlds:
- Preservation of ethos and values – potentially avoiding the cultural risks of selling to a competitor or private equity buyer.
- Rewarding loyal employees – who can share in the profits of the business going forward in a tax efficient manner (each employee can get a tax-free bonus of up to £3,600 per annum) as well as taking an active part in decision-making helping shape the future of the business under employee ownership.
- Providing a fair market-value exit – where sellers are allowed to receive a market rate (but no more) for their shares, without the pressure of an external buyer’s timetable and demands.
- Benefiting from tax reliefs – where not only do employees benefit from tax free bonuses but sellers meeting the qualifying criteria can be exempt from paying Capital Gains Tax on the sale value.
Making an EOT work in practice
An EOT is not a “set and forget” arrangement. It’s a long-term change in the way the business is owned and governed, and its success depends on careful planning and ongoing attention.
Key factors to bear in mind include:
- A strong management team – Day-to-day leadership needs to remain consistent and capable. An EOT does not replace the need for experienced executives who can drive strategy, maintain profitability, and adapt to changing market conditions. Without strong management, the trust structure alone cannot protect the business.
- An experienced independent trustee – The trustee plays a vital role in safeguarding employee interests, overseeing how the trust operates, and ensuring decisions align with both the business’s commercial objectives and the principles of employee ownership. Appointing a trustee with specific EOT expertise helps avoid governance pitfalls and gives employees confidence in the process.
- Clear communication – Moving to employee ownership can be misunderstood if it’s not well explained. Employees should understand how the trust works, what their rights and responsibilities are, and how they can influence the business. Effective communication keeps staff engaged, aligns expectations, and ensures everyone understands that the company’s performance directly affects the benefits they receive. Paying an immediate tax-free bonus to employees on completion of the sale of the business to an EOT can go a long way to helping show employees the immediate benefits of becoming employee owned.
Handled well, these elements help an EOT deliver what it promises: continuity, stability, and shared success for both the outgoing owners and the employees who take on the responsibility of ownership.
Beyond the headlines
High-profile EOT stories often focus on the generosity of the outgoing owner. While there may be a genuine desire to look after staff, it is important to understand that an EOT is a commercial transaction. The seller is paid a full market value for the business, the main difference being that the seller will often take a large proportion of their money on a deferred basis from the future profits of the business.
That structure is what makes the EOT mutually beneficial: the business remains in trusted hands, employees have a tangible stake in its success, and the seller exits on fair terms.
How Gorvins can help
We have a proven track record in delivering EOT transactions, advising on the legal, governance and structural aspects to ensure a smooth and compliant transfer. Our experience and specialism working with family and owner-managed businesses gives you peace of mind that you’re getting the most appropriate legal advice.
If you are considering your succession options, we can help you explore whether an EOT could be right for you and guide you through every step of the process.
For a confidential discussion, contact our corporate team today by calling us at 0161 930 5151, emailing us at enquiries@gorvins.com or by filling in the online form.