What Happens When an Employee Leaves an EOT?

Employee Ownership Trusts (EOTs) have become an increasingly popular way for business owners to transition out of ownership while preserving company culture and rewarding their workforce. But what happens when an employee leaves a company owned by an EOT? Do they lose out? Do they take shares with them? What should businesses and employees consider when navigating this?

In this guide, we’ll break down what an EOT is, what happens when an employee leaves, and the benefits and drawbacks for both employers and employees.

What Is an Employee Ownership Trust (EOT)?

An Employee Ownership Trust is a specific type of trust structure that allows a business to become majority employee-owned. Introduced by the UK government in 2014 to promote wider employee ownership, an EOT enables a trust to hold at least 51% of a company’s shares on behalf of its employees.

The main appeal? It allows a business owner to sell their company without going through a traditional sale, while giving employees a stake in the future of the business—though typically not direct shares.

Key features of an EOT include:

• The trust owns a controlling interest in the company.

• Employees benefit collectively from the success of the business.

• Employees usually don’t hold individual shares—they’re beneficiaries of the trust.

• The business can pay annual tax-free bonuses to employees (up to £3,600 per year per employee, as of 2025).

What Happens When an Employee Leaves an EOT?

When an employee leaves a company owned by an EOT, they typically stop benefiting from the trust. Since most EOTs don’t involve direct share ownership by employees, there’s no sale or transfer of shares when someone leaves. Instead, eligibility to benefit from the trust—usually through bonuses or profit shares—ends when employment ends.

This means:

• The employee does not “cash out” or receive a lump sum when they leave.

• They lose future benefit entitlements under the trust.

• They are removed from the list of eligible beneficiaries.

In rare cases where the EOT is structured to include individual share ownership alongside the trust, leaving employees may be offered a buyback or sale mechanism. But this is not standard and depends on how the EOT was designed.

What Should a Business Consider When Exploring EOTs?

Before converting to an EOT, a business should assess several things:

1. Cultural Fit: Does your team value shared ownership and collective input, or is your workforce disengaged from company performance? EOTs thrive in engaged, transparent cultures.

2. Long-Term Commitment: EOTs are not quick-fix solutions. They require ongoing governance, trustee management, and cultural alignment.

3. Succession Planning: EOTs are most effective when used as part of an owner’s exit strategy. A rushed transition without planning can leave the business rudderless.

4. Financing the Sale: EOTs typically require the business to generate enough profit to buy out the former owner over time, so financial stability is key.

5. Legal and Tax Advice: Specialist support is essential to ensure compliance with EOT legislation and to maximise tax efficiency for both seller and trust.

What Should Employees Consider Before Leaving an EOT?

For employees considering leaving a company owned by an EOT, it's worth thinking through the following:

• Lost Benefits: Leaving may mean giving up the opportunity to earn tax-free bonuses or future profit shares.

• Timing: If the company is due to distribute a bonus soon, consider whether delaying your departure could be financially beneficial.

• No Exit Value: Unlike shareholders in a private company, EOT beneficiaries don’t own shares, so there’s no capital gain when leaving.

• No Transferable Ownership: You can’t transfer your “stake” in the business because it’s not a personal asset—it’s held collectively.

Ultimately, if you're leaving, you're stepping out of the employee ownership model and any future rewards tied to it.

What Are the Benefits of EOTs for Employers?

There are several advantages to EOTs for business owners and employers:

• Capital Gains Tax Relief: Business owners selling a controlling stake to an EOT pay 0% Capital Gains Tax on the sale (subject to conditions).

• Employee Retention and Morale: Shared ownership can improve engagement and loyalty.

• Smooth Succession Planning: Owners can exit while protecting the company’s independence and legacy.

• Brand Reputation: Being employee-owned can improve customer perception and stakeholder trust.

• Annual Tax-Free Bonuses: These can act as strong incentives without raising the employer's tax burden significantly.

What Are the Drawbacks of EOTs for Employers?

EOTs aren’t for everyone. Here are the potential downsides:

• Cash Flow Strain: Financing the buyout usually means the company itself must generate the cash to pay the former owner, often over several years.

• Ongoing Governance Burden: Trustees must be appointed and trusted to act in the best interests of employees. This adds an extra layer of oversight.

• Cultural Mismatch: If employees aren’t engaged or interested in ownership responsibilities, the EOT model may underdeliver.

• Complex Setup: Structuring and registering an EOT involves legal, tax, and accounting costs that smaller businesses might find hard to justify.

What Are the Benefits of EOTs for Employees?

For employees, the benefits include:

• Shared Success: Employees get a slice of profits through tax-free bonuses, boosting take-home pay.

• Increased Engagement: Employees may feel more invested in the business's future.

• Job Security: EOT-owned firms are less likely to be sold off or broken up, supporting longer-term employment.

• Equality: Benefits are typically distributed equally or proportionally, reducing hierarchy in financial rewards.

What Are the Drawbacks of EOTs for Employees?

Despite the benefits, there are a few limitations:

• No Personal Ownership: Employees don’t actually own shares, so they can't sell them or benefit from capital appreciation.

• Limited Influence: While employee voice may be encouraged, governance structures still place control in the hands of trustees.

• Loss of Benefit on Exit: Leaving the company means walking away from the trust and any future bonuses.

• Not Always Transparent: Some companies fail to clearly explain how the EOT works or how profit distribution is determined.

Final Word

When an employee leaves an EOT-owned company, their participation in the trust—and access to future benefits—ends. While EOTs don’t hand out shares to individuals, they do offer collective financial rewards and cultural cohesion, as long as the business stays profitable and committed to the model. For employers, the structure offers tax advantages and a strong exit route. For employees, it offers a voice and a share in the success—but not equity in the traditional sense.