Stepping back from ownership of your company can be a tricky balancing act. It’s time to move on, but at the same time, you want to make sure your company prospers long after you’re gone. A popular way to achieve both of these aims is incorporating employee ownership into your succession plans. The two main options for this are an Employee Benefit Trust (EBT) and an Employee Ownership Trust (EOT). Which one is best suited to your company will depend on your goals going forward?
What’s Your Strategy?
There are two main strategies when it comes to including your employees in your succession plan:
- The first is where you ultimately do not see employee ownership of the company as the right option for your company. In this situation, you want to incentivize employees to grow the business so that they benefit when the company is eventually sold to a third party, benefiting them, and making your shares more valuable.
- The second strategy is where you want to place ownership in the hands of your employees. This option allows for continuity and a relatively smooth transition, and also offers some important tax incentives.
Employee Benefit Trust
If your strategy is option one, where you don’t see your company benefiting from employee ownership, then an EBT could be the ideal option. The EBT allows shareholders to begin to dispose of some of their shares into a trust for key employees. This is a great way of incentivizing your employees during a transition that can sometimes be difficult. By owning their own stake in the company, these key employees will have extra motivation to make sure your succession plans run smoothly.
Employee Ownership Trust
A common feeling when planning for succession is wanting to secure your legacy for your business. An excellent way of doing this is through an EOT, in which an Employee Ownership Trust becomes the controlling owner of the company.
By selling to your employees rather than a third party, you ensure continuity and allow your company to continue on its successful path. Not only does this option give your employees a big incentive to take the company forward, but it also means you don’t have to pay Capital Gains when you do come to sell your shares.
Involving Your Employees in a Succession Plan
Whether you choose an Employee Benefit Trust or an Employee Ownership Trust, involving your employees in your succession plans can have enormous benefits for your company. Succession planning – EBT or EOT? Which option best suits your company’s needs will really depend on your goals for succession and the strategy those goals lead you to pursue. Each option has its own benefits, but it’s clear that there is a lot to be said for including your employees in your succession plans.
Having been opened up in 2014, the government is eager to encourage businesses to take these options, and this means there are some great perks. If you’re thinking about succession planning, then you should certainly be considering an EBT or an EOT.
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