Independent Trustee to Employee Ownership Trusts
Employee Ownership Trusts (EOTs) have become an increasingly popular route for business succession. For owners seeking an exit, an EOT provides a “friendly buyer” that preserves the ethos and culture of the business while enabling employees to share in its future success. The success of that structure depends heavily on how it is governed.
Why an Independent Trustee?
In most EOT structures the trustee board comprises employee representatives, company representatives and an independent trustee. Where a trust is closely connected to the company, there is always the potential for competing interests between founders, management and employees. The independent trustee provides objectivity, balance and experience — giving all parties confidence that the trust operates in accordance with its purpose and in the interests of the employee beneficiaries.
The Role of the Trustee
The trustees hold the shares in the company and oversee the operation of the trust for the benefit of employees. Responsibilities typically include:
– ensuring the trust operates in accordance with the Trust Deed and relevant legislation
– chairing trustee board meetings and governance decisions
– providing independent oversight of the relationship between the company and the trust
– managing potential conflicts of interest between stakeholders
– supporting effective communication between the trustee board, the company and employees
– safeguarding the long-term objectives of the employee ownership structure
The trustees do not run the business — that remains the responsibility of the directors. Their role is to ensure the employee ownership structure works as intended over the long term.
Valuation and the Regulatory Framework
Recent legislative changes have significantly increased the obligations placed on EOT trustees, with direct implications for the valuation of the business being acquired.
With effect from 30 October 2024 (Finance Act 2025), trustees are required to take all reasonable steps to ensure that the consideration paid for shares does not exceed their market value at the time of the sale, and that any interest payable on deferred consideration does not exceed a reasonable commercial rate. HMRC guidance published in April 2025 makes clear that this will typically require an independent professional share valuation — obtained by the company or by another person on whom the trustee can rely. Sellers claiming CGT relief must be able to demonstrate that this requirement has been met.
Further changes from 26 November 2025 reduced the CGT relief available on disposals to EOTs from 100% to 50% of the chargeable gain. The period during which relief can be withdrawn has also been extended from one to four tax years following the year of disposal, requiring conditions to be maintained for a materially longer period than previously.
An independent trustee with experience of ownership structures and business valuation plays a critical role in navigating these requirements — ensuring that valuations are properly obtained and documented, and that the conditions for relief are maintained over time.
Practical Governance
Establishing an EOT is only the beginning. As the business develops — particularly in the early years following transition — governance arrangements need to evolve. This typically includes:
– establishing effective trustee board procedures
– defining the relationship between the trustee board and the company board
– supporting the development of an Employee Council
– ensuring the structure continues to meet the requirements for EOT tax treatment
– managing the balance of interests between founders, management and employees as the business grows
How We Can Help
We act as Independent Trustee to Employee Ownership Trusts, providing practical and experienced governance support. We bring:
– independence and objectivity
– experience of ownership structures, succession planning and business valuation
– a pragmatic approach to governance
– a focus on long-term sustainability
We work with trustees, directors and employee representatives to ensure the EOT operates effectively and continues to deliver the intended benefits to the business and its employees.
Further Discussion
If you are considering establishing an Employee Ownership Trust, or if an existing trust would benefit from the appointment of an Independent Trustee, we would be pleased to discuss how we may be able to help.
