Conversion of Network Design & Marketing Limited into an employee ownership trust

Richard Coulthard
Director & Head of Corporate

Overview

Conversion of Network Design & Marketing Limited into an employee ownership trust

Case Study

The team at Ison Harrison were approached by the shareholders of Network Design & Marketing Limited who were looking at their options regarding succession planning for their company.

Reviewing the shareholders’ options for exit (horizontal acquisition or vertical acquisition or private equity buy out) it was identified that an employee ownership trust would be the best structure to achieve their aims of passing ownership to the employees but realising their efforts for growing and building the business over the previous 24 years.

An EOT creates a workplace where everyone feels valued and a part of something they can influence and personally benefit from as well as giving a platform for delivering further growth and success for the company. It also allows the staff to benefit from a tax-free bonus of up to £3600 to be distributed equally amongst all those that fulfil the trust conditions.

However, converting into an employee ownership trust is complex as there is a specific statutory legislative regime that must be adhered to ensure that the transaction qualifies for the statutory reliefs around CGT and the tax-free distribution for the employees.

Ison Harrison helped explain the process in a clear and conscious manner highlighting key issues in documents including the share purchase agreement, disclosure letter and the establishment of the employee ownership trust.

The composition of the employee ownership trust can be one of the hardest aspects of the process as it requires the appointment of both an independent, and an employee trustee. This can result complicated power dynamics as employees may not want to take responsibility for this position or it might lead to resentment from those not selected. Additionally, the selling shareholders often remain in the company following the conversion to an employee ownership trust and their new status in the company needs to be carefully managed and documented.

There is a fine balance that must be struck between the interests of the selling shareholders and the employee ownership trust however the Ison Harrison team received 5* feedback for being highly knowledgeable, trustworthy and conscientious and the clients highly recommend Ison Harrison for legal advice in the future.

Their guidance throughout what is a fairly complex process was invaluable and very reassuring.