Future-Proofing the Business: Succession Planning via an Employee Ownership Trust

The Challenge

Our clients, a husband-and-wife team, owned a highly successful retail business that also included valuable property assets. As they approached retirement, they wanted to secure the future of the business while rewarding their loyal employees. They were looking for a solution that would ensure the company’s continued success without a full sale to outside parties.

The challenge was further complicated by the property assets, which needed to be separated from the operational side of the business. This separation had to be handled effectively before moving forward with an EOT to ensure tax efficiency and preserve the company’s value.

The Solution

Stratos provided comprehensive support throughout the transition process, delivering a tailored strategy to meet the client’s needs:

• Demerger of Property Assets: We guided the clients through the demerger process, ensuring the property assets were legally and financially separated from the core business in a way that aligned with the EOT structure.
• Valuation of the Business: To ensure the sale was done at market value and therefore met the conditions for a sale to an EOT, we assisted in the valuation of the business, providing a fair and transparent assessment that satisfied both the clients and regulatory requirements.
• EOT Design and Implementation: We worked closely with the shareholders to design and implement the EOT to ensure it would meet the specific needs of the business and its employees. This included careful planning of the transaction process to ensure both the company and the employees could benefit from the tax efficacy of the EOT.
• Coordination with Lawyers: We supported the clients throughout the process by collaborating with their legal advisors to draft the necessary trust documents, ensuring smooth implementation and compliance with all legal requirements.

The Value

The transition to employee ownership was successfully completed, with the majority of the business — and its future — now owned by the employees. Key outcomes included:

• The property assets were separated effectively, ensuring tax efficiency and protecting the business’s operational side from unnecessary complexities.
• The husband-and-wife owners were able to exit with tax relief, with no capital gains tax on the sale under the EOT structure, allowing them to step back from the business, whilst retaining a small 20% shareholding so that they can continue to support the business as needed but are able to see the company thrive under employee ownership.
• The company maintained its culture and continued to grow with the dedication and motivation of the newly engaged employee-owners.