Why an Employee Ownership Trust (EOT) Could Be the Smartest Exit Strategy for Your Business

As a business owner, planning your exit is one of the most important decisions you’ll ever make. Whether you’re looking to step back, unlock shareholder value, or preserve your legacy, choosing the right succession strategy is crucial not just for your future, but for your employees, clients, and the culture you’ve worked so hard to build.

At DropJaw Ventures, we’ve worked with startups, scale-ups, and distressed businesses, helping them find sustainable and tax-efficient exit strategies. One of the most powerful tools in our toolkit is the Employee Ownership Trust (EOT).

What Is an EOT and Why Should You Care?

An EOT is a structure where employees collectively own a controlling stake in the business via a trust. Originally popularised by the 2012 Nuttall Review and legally supported by the UK Finance Act 2014, EOTs are rapidly growing in popularity for good reason.

Companies like John Lewis set the benchmark, and today over 1,600 UK businesses have followed suit spanning engineering, technology, services, and more.

The Key Benefits of Selling to an EOT

✅ 100% Capital Gains Tax Exemption
Selling 51% or more of your business to an EOT means zero CGT – potentially saving hundreds of thousands of pounds.

✅ Up to £3,600 Tax-Free Bonuses for Employees
Each employee can receive up to £3,600 in bonuses annually, tax-free. It’s a win-win for engagement and retention.

✅ Preserve Your Legacy & Culture
Unlike trade sales or MBOs, an EOT keeps your values and people front and centre.

✅ A Fair Price Without the Drama
You sell at fair market value – no need to hunt for buyers or haggle with PE firms. You define the terms and timing.

✅ “Second & Third Bites of the Cherry”
It doesn’t have to be all or nothing. Sell 60% now, then 20% later, and the final tranche when your business is even more valuable.

The Journey: How an EOT Sale Works

  1. Feasibility Assessment – Is your business ready?
  2. Valuation Agreement – Establish a fair, tax-efficient price.
  3. Trust Formation & Funding Structure
  4. Sale Completion
  5. Communication & Staff Engagement
  6. Ongoing Mentoring & Governance

We guide you through every step  no fluff, no jargon, just straight-talking support.

The Tangible Outcomes: A Real-World Scenario

Let’s say your company’s EBITDA is £200k. You sell 60% of the business at a 5x multiple (£1M valuation). Over 5 years, you receive £600K tax-free. Later, you sell the remaining shares as your EBITDA increases — ultimately earning over £1.15M in tax-free payments, plus bonus PAYE income, and all while protecting your company and supporting your team.

What Are the Pitfalls to Watch Out For?

  • EOTs are not a panacea :They work best with a strong second line of management ready to lead.
  • You no longer control the majority :That’s the point. It’s about empowering your people.
  • You can’t raise PE or VC funds through an EOT : But that’s often a feature, not a bug.

So, Is an EOT Right for You?

If you’re an SME owner looking for a tax-efficient, legacy-preserving, and people-positive exit, the EOT model might just be your perfect match. At DropJaw Ventures, we don’t sell hype we provide real-world insight, feasibility planning, and external facilitation to help you make the smartest choice for your business and your future.

✅ Our Recommendations

  • Get independent tax advice early
  • Appoint an external NED or advisor (especially if your leadership team is still maturing)
  • Plan for your exit without emotion or ego
  • Don’t get greedy, get smart
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