I’ve just completed my 80th Employee Ownership Trust.
It’s also 10 years since I completed my first EOT project.
In that decade, a lot has changed. While Employee Ownership is ultimately much the same, so much has been learned and so many challenges encountered that the environment has evolved, matured and demonstrated its impact on founders, employees, communities and beyond.
When I worked on my first EOT, not long after the rules were introduced in 2014, the model felt almost deceptively simple. The combination of a 0% CGT relief, a ready-made buyer, and a compelling employee ownership narrative, suggested that it should be immediately successful and widely adopted.
But that didn’t happen.
From Sceptics to Advocates
The most common reaction back then wasn’t excitement. It was scepticism.
“What’s the catch?”
“If it’s this good, why hasn’t anyone mentioned it before?”
Those were fair questions.
And they reflected a broader uncertainty from business owners, advisers, and academics about whether employee ownership could really work in practice.
Even now, that scepticism hasn’t entirely gone away. I still hear arguments based on the “tragedy of the commons”, the idea that collective ownership inevitably leads to self-interest and decline.
But after 80 transactions, I can say with confidence that the reality is very different.
Employee-owned businesses don’t just function; they often excel. They find efficiencies, create new opportunities, and unlock ideas that might otherwise never surface. Not because the structure forces it, but because people start to think differently when they feel a genuine sense of ownership.
That positivity has leaked out into the business environment and created ripples of confidence in the structure. Founders sharing their stories of their pride in the businesses they built, now entrusted to the people who work in it. Employees declaring their happiness in a company in which they now have a profit share, not just a payroll number.
With every passing year the group of sceptics diminishes as the growing g number of advocates reveal real life anecdotes and examples of employee ownership success.
And the growth of the sector reflects that. We’re now approaching 3,000 employee-owned businesses in the UK[1]. Still a small proportion overall, but around ten times what it was a decade ago.
That doesn’t happen by accident.
From Giving Reassurance to Managing Expectations.
In the early days, the focus was on providing certainty and reassurance.
Now, the focus is much more practical.
Can this business actually make a success of employee ownership?
Can it thrive, not just survive, under this model?
They’re the right questions.
Because although EOTs can fail on technicalities, they will more likely succeed or struggle based on how well the business adapts to being employee-owned.
It’s not intrinsicaly hard to put a company into an EOT, but good luck to all concerned if it wasn’t challenging for the founders in undertaking the process. If the EOT is not properly considered and reflected upon as a major turning point for all involved, then it’s likely that founders and trustees will discover that their expectations are unlikely to be met. Properly supported, an EOT can flourish with realistic ambitions achieved.
The Rules have Changed
The 2024 Budget and the more significant tax changes in the 2025 Budget signalled a clear shift in tone.
While the 2024 Budget brought much higher levels of compliance and many traps for the unwary, the 2025 Budget reduced the tax incentives. The changes signalled a recognition that the EO environment was fast maturing and no longer perceived as a high risk option meriting enhanced support. The changes ironed out potential for abuse in the system, while preserving the most advantageous tax incentives for exiting owners.
From Compliance to Governance
In the early years, many EOTs were built primarily around achieving the tax outcome and protecting sellers. Governance often came second. Trustee boards could be underpowered, employee voice was sometimes more theoretical than real, and founders understandably remained dominant.
That hasn’t disappeared, but it has improved.
What I see now is a a recognition that a good governance structure is valuable, not merely necessary. Trustee boards are stronger. Independent trustees are more common. Employee forums are becoming more meaningful. And clients are engaging seriously with what good governance actually looks like.
And when governance works, the whole model works better.
Exit of the Founder
The same is true of founder exits.
One of the early misconceptions was that an EOT provides a simple exit; complete the sale and ride off into the sunset. In reality, most involve deferred consideration, ongoing involvement, and a gradual shift in control.
The difference now is that this is better understood and managed.
The strongest transactions treat an EOT as a transition, not a transaction. They plan for it, structure for it, and think carefully about what happens after completion. Because, the day a company completes its EOT is only day one of being employee-owned…
Repayment terms
Repayment is another area where the market has matured.
Because most EOTs are funded out of future profits, there is an inherent tension between:
- reinvesting in the business
- rewarding employees
- repaying the purchase price
Earlier projects didn’t always fully reflect that balance, because it was difficult to foresee how the repayment terms might impact the company, the trustees or the employees.
Now, there is far greater focus on sustainability, on aligning repayment terms with real-world performance and building in flexibility.
Get that balance right, and the structure is resilient.
Get it wrong, and pressure builds quickly, risking leadership retention, cynicism in the business and a spiral of decline.
The EO mindset
Perhaps the most encouraging shift is how businesses think about employee ownership itself.
There was a time when the process effectively stopped at completion. Ownership changed, but the employee experience didn’t.
That’s changing.
More businesses are now asking how ownership is actually felt, through communication, reward, and day-to-day decision-making.
The tax-free bonus plays an important role here. By sharing part of the success of the business with the employee-owners, individuals have a material stake in the outcome. Just make sure that it’s not perceived as a reward granted by the directors! It’s not; it’s the consequence of being a co-owner of a prosperous business.
But it’s more than the money, it’s the sense of purpose that a great employee-owned company provides.
And this is where my optimism really comes from, what I’ve seen in practice.
I’ve seen employees identify opportunities others might overlook, turning unused assets into revenue, repurposing space, and improving efficiency in ways that directly impact bottom line of the business.
I’ve seen trustee groups make genuinely commercial decisions, carefully considering ideas like a four-day week and concluding, collectively, that it wasn’t right for their business.
Not driven by ideology.
Driven by ownership thinking.
But that only happens when employees are treated like owners.
And that requires more than just access to information. It requires understanding.
Challenges Remain
That said, there are still real challenges and these tend to fall into two areas: leadership and finance.
Employee ownership deals with ownership. But it doesn’t address leadership.
EOTs provide succession for shareholders, but they don’t automatically create the next generation of leaders. Founders may step back gradually, but they will step back. And when they do, the business needs people ready and willing to step up.
That makes leadership development critical.
The second challenge is financial.
EOTs can come under pressure where there is a mismatch between repayment obligations and the realities of the business.
Valuations and repayment terms agreed in stronger conditions can create strain if performance shifts. That can lead to frustration, particularly if employees feel profits are being absorbed by historic obligations rather than reinvested or shared.
The answer isn’t to avoid these structures. It’s to design them better.
A New Way of Business
Employee-ownership is often narrowly seen through the lens of succession and tax incentives and this is unsurprising because the majority of EOTs that exist, do so because their former owners wanted to find an exit for themselves.
But whatever the rationale for taking the EO route, the consequence is far more profound than simply succession; because an employee-owned company is not like any other company.
- You won’t find an employee-owned company owned in an off-shore tax-haven; it must be UK domiciled and UK tax contributing
- You won’t find decisions taken with a view to maximising short term returns; decisions take account of not just the near future but the long terms success of the business
- Wealth is not discretely allocated to a few; success is shared with all
- Prosperity flows to employees, their families and their communities with all the attendant benefit that brings both now and in the future
After 80 transactions, I’m more realistic about EOTs than I was at the start.
But I’ve also seen them work, really, really well.
So if I had to sum it up, it would be this:
Employee Ownership gives a founder a good exit, drives prosperity for employees and is a catalyst for positive change far beyond the company itself. Long may it thrive!
[1] https://employeeownership.co.uk/Site/content/News-and-Insights/News/eo-sector-3000-businesses.aspx
