How to Prepare Your Business for an EOT Transition

EOT.co.uk
Aug 21
3 min read

Transitioning your business to an Employee Ownership Trust (EOT) can be a highly effective exit strategy — offering significant tax advantages, protecting your company’s culture, and providing a secure future for your employees.

But while the EOT model has clear benefits, the process requires careful planning and preparation. Rushing into a transaction without the right groundwork can lead to unnecessary delays, valuation challenges, and potential financing issues.

At EOT.co.uk, we guide business owners through the entire process — from feasibility studies to final completion — ensuring the transition is smooth, compliant, and beneficial for all stakeholders. Here’s how to get your business ready.

Clarify Your Objectives

Before you start, be clear on why you’re considering an EOT. Is it purely for tax efficiency? To preserve the culture and legacy of your business? To ensure long-term employee security?

Having clear objectives will shape how the deal is structured and communicated to staff. It will also help you determine whether an EOT is the best option, or whether a trade sale, partial sale, or management buyout may be more appropriate.

Understand the Qualifying Criteria

Not every business will meet the requirements for an EOT transaction. To qualify for 100% Capital Gains Tax relief:

The EOT must acquire a controlling interest (more than 50% of the shares).
The business must be a trading company (or the holding company of a trading group).
A minimum proportion of employees must benefit equally from the trust.

Knowing whether you meet the criteria — or what changes are needed to qualify — is an essential first step.

Get a Professional Valuation

An independent business valuation is critical for:

Ensuring the transaction meets HMRC requirements for “market value”
Avoiding disputes between trustees, employees, and existing shareholders
Structuring financing arrangements appropriately

At EOT.co.uk, we work closely with specialist valuers to provide valuations that are both commercially fair and compliant.

Review Your Business Structure and Finances

Strong, transparent financial records are essential. Buyers — even an EOT — will want reassurance that the business is healthy, stable, and capable of supporting any deferred payment structure. Preparation includes:

Cleaning up the balance sheet
Ensuring tax returns and filings are up to date
Resolving shareholder or director disputes
Reviewing contracts, leases, and intellectual property ownership

Engage the Right Advisers Early

An EOT transaction involves legal, tax, valuation, and financing expertise. Engaging experienced advisers early ensures that:

The structure is tax-efficient and compliant
Financing arrangements are realistic and sustainable
The trustee board is set up to act in the best interests of employees

We regularly work alongside accountants, solicitors, and specialist lenders to coordinate a seamless process.

Plan the Communication Strategy

Moving to employee ownership is a major cultural shift. A well-managed communication plan helps build understanding, trust, and excitement among employees. This may include:

Pre-announcement briefings with key managers
Clear explanations of how the EOT works and what it means for staff
Q&A sessions to address concerns
Long-term updates on performance and trustee decisions

Understand the Post-Completion Role

Many selling owners remain involved for a period after the transition — either to manage the handover or to continue driving growth. Being clear about your post-completion role will make it easier to plan management succession and governance arrangements.