Why Private Equity is the Worst Option! As a business owner, you’ve spent years, if not decades, building something remarkable. Your company is more than just a source of income—it’s your legacy. But as you look to the future, one crucial question arises: what happens next?
With the 2026 tax reforms on the horizon, the way business owners exit their companies is about to change significantly. Exiting the wrong way could cost you hundreds of thousands, if not millions, of dollars in taxes. Even worse, it could mean watching your company’s culture, employees, and mission shift in ways you never intended.
Enter the Employee Ownership Trust (EOT)—an underutilized but powerful tool that offers substantial tax benefits while preserving your company’s culture and ensuring long-term stability.
In this article, we’ll break down everything you need to know about EOTs, how they work, and why they might be the best exit strategy for your business.
What is an Employee Ownership Trust (EOT)?
An Employee Ownership Trust (EOT) is a business structure that allows ownership to transition to employees through a trust rather than being sold to a competitor or a private equity firm. This method ensures business continuity while giving employees a financial stake in the company’s success.
Unlike traditional business sales, where new owners often impose layoffs or major restructuring, an EOT allows a smoother transition, keeping your company’s mission intact and rewarding loyal employees.
How Does an EOT Work?
- Business Valuation – The company is appraised to determine its fair market value.
- Setting Up the Trust – A trust is created to hold the business on behalf of employees.
- Owner Compensation – The business pays the owner over time using company profits, ensuring a financially sustainable transition.
- Employee Benefits – Employees gain indirect ownership and typically receive profit-sharing incentives.
This structured approach allows business owners to transition ownership gradually without disrupting daily operations.
Why Are Business Owners Choosing EOTs Now?
With tax laws set to change in 2026, many business owners are looking for ways to exit their businesses in a tax-efficient manner. Here are some key tax considerations:
- No Capital Gains Tax – In many cases, selling a business to an EOT is exempt from capital gains tax, allowing you to receive the full value of your company tax-free.
- National Insurance Increases – Higher employer contributions mean that traditional business transitions may become costlier.
- Inheritance Tax Adjustments – Passing a business to heirs may trigger a 40% tax burden, making succession planning more complex.
An EOT provides a way to navigate these financial hurdles while safeguarding your company’s legacy.
Key Benefits of Employee Ownership Trusts
1. No Capital Gains Tax
Selling your business to an EOT can often be tax-free, which means you don’t lose a large portion of your sale price to the government.
2. Employee Engagement & Productivity
Studies show that employee-owned businesses have higher productivity, profitability, and retention rates. When employees have a stake in the company, they work harder and are more invested in its success.
3. Business Longevity & Stability
Unlike traditional sales, where a new owner might change the company’s direction, an EOT allows the business to maintain its culture, values, and long-term vision. Customers, suppliers, and employees all benefit from continuity.
4. A Gradual & Flexible Transition
Selling a business is an emotional decision. With an EOT, the transition can be gradual. Many founders choose to stay involved as consultants or advisors, mentoring the next generation of leadership.
Real-Life Success Stories: How EOTs Preserve Legacies
James’ Construction Firm
James, a successful construction business owner, received multiple buyout offers from private equity firms. However, these offers involved significant layoffs and major business restructuring. Instead, James opted for an EOT, ensuring his 200 employees kept their jobs. Over time, employee morale improved, productivity soared, and profits grew—allowing James to retire comfortably, knowing his business was in good hands.
Susan’s Family Bakery
Susan ran a bakery that had been in her family for three generations. She wanted to retire but feared that selling to a big corporation would turn her beloved bakery into just another chain. By transitioning to an EOT, Susan passed ownership to her dedicated employees, many of whom had worked with her for years. Now, they have a vested interest in the bakery’s success, and Susan enjoys retirement knowing her family’s legacy remains intact.
Traditional Exit Strategies vs. Employee Ownership Trusts
Historically, business owners have had three primary exit options:
- Sell to a Competitor or Private Equity Firm – Often leads to layoffs and major cultural changes.
- Pass the Business to Family – Risky if heirs lack experience or interest in running the business.
- Close the Business – A last resort that erases the company’s legacy.
Why EOTs Are a Better Alternative:
- Owners receive fair market value for their business without compromising on price.
- Employees gain ownership without debt, as the business funds the transition.
- The business continues operating with long-term stability for employees, customers, and suppliers.
Is an EOT Right for Your Business?
As tax laws shift and business owners seek better succession strategies, Employee Ownership Trusts are emerging as a game-changing solution. Not only do they offer substantial tax savings, but they also ensure that your company’s mission, culture, and employees remain intact.
If you’re a business owner thinking about retirement or looking for an exit strategy that aligns with your values, an EOT might be the best option. Instead of an abrupt departure, you can create a legacy of shared success and enjoy financial security without unnecessary tax burdens.
For a deeper dive into tax-efficient business transitions, check out my book: Your Biggest Expense: How to Legally Pay Less in Taxes and Keep More Wealth.
Want to explore how an EOT could work for your business? Let’s start a conversation today!
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