- Employee Ownership Trust (EOT)
- A trust, created under the Finance Act 2014, that buys and holds a controlling interest in a trading company for the benefit of all its employees. The most common vehicle for UK employee buyouts.
- Employee Benefit Trust (EBT)
- The older, more general form of employee trust. An EBT can hold shares or provide benefits for employees but does not carry the EOT's specific tax reliefs. Many businesses use one alongside an EOT — for example, to warehouse shares for a share scheme.
- Trustee board
- The people who administer the trust. Collectively they act as the company's controlling shareholder, overseeing the company board on the employees' behalf. Typically a mix of employee-elected, company-appointed and independent trustees.
- Trust deed
- The trust's constitution: what the trustees must do, may do, and cannot do — including how hard it should be to ever sell the company. The most important document most employee owners never read.
- Corporate trustee
- A limited company set up to act as the trustee, with the individual trustees as its directors. Common in practice — it simplifies changes of personnel and limits personal exposure.
- Beneficiaries
- The people the trust exists to benefit: all eligible employees of the company, present and future, on the same terms.
- Controlling interest
- More than 50% of the company's shares and voting rights. The EOT must acquire and keep a controlling interest for the tax reliefs to apply.
- Market value
- The price the shares would fetch between a willing buyer and willing seller — established for an EOT sale by independent valuation. The trustees must not pay more.
- Deferred consideration
- The part of the purchase price not paid on completion, owed to the seller and paid over the following years — usually funded from the company's profits. Most EOT purchases involve some.
- Contribution
- The payment a company makes to its EOT so the trust can pay the seller. The standard funding mechanism for deferred consideration.
- Vendor / seller
- The shareholder(s) selling to the trust — usually the founder or existing owners. You will hear "vendor-funded" used to describe deals where the seller effectively finances the purchase by waiting for deferred consideration.
- HMRC clearance
- Written confirmation from HMRC, obtained before completion, that the transaction will be taxed as intended. Not legally required, but standard good practice in EOT transactions.
- CGT relief
- The headline tax incentive: on a qualifying sale of a controlling interest to an EOT, half of the seller's gain is exempt from capital gains tax — an effective blended rate of 12% (for disposals on or after 26 November 2025; earlier sales were fully exempt).
- Qualifying conditions
- The statutory tests an EOT structure must meet — trading status, controlling interest, all-employee benefit on same terms, and limits on participators — both at the transaction and continuously afterwards.
- Disqualifying event
- An event that breaches the qualifying conditions after completion — for example, the trust losing control. Can trigger significant tax charges, which is why structures need minding, not just making.
- Same-terms requirement
- The rule that trust benefits (including the tax-free bonus) must be provided to all eligible employees on the same terms — though they may be scaled by hours, salary or length of service.
- Tax-free bonus
- Up to £3,600 per employee per tax year, payable free of income tax (though not National Insurance) by an EOT-controlled company, on same-terms rules.
- Employee council / voice
- The forum through which employees are informed and heard — distinct from the trustee board, and in good structures, feeding it. The form varies; the existence should not.
- Employee-elected trustee
- A trustee chosen by the workforce, sitting on the trustee board with the same duties as every other trustee — representing all beneficiaries, not a constituency.
- Independent trustee
- A trustee with no other role in or history with the business, appointed for experience and objectivity. See independent trustee services.
- Articles of Association
- The company's own constitution. Usually amended at transition so the company's rules and the trust's rules work together rather than against each other.
- Share purchase agreement (SPA)
- The contract under which the trust buys the shares: price, payment terms, warranties and what happens if things change.
- Heads of terms
- The short pre-contract document recording the commercial deal — price, structure, timing, roles — before detailed drafting begins.
- MBO (management buyout)
- A sale of the business to its senior managers, usually funded by debt or private equity. One of the routes an EOT should be honestly compared against.
- Hybrid ownership
- Structures combining an EOT with other ownership — a founder's retained minority, or direct employee share schemes such as EMI options — so collective and individual ownership work together.
- Worker co-operative
- A business owned and democratically governed by its workers, one member one vote — an older tradition of employee ownership, with its own structures and its own strengths.
- Nuttall Review
- The 2012 government-commissioned review of employee ownership whose recommendations led to the EOT legislation in the Finance Act 2014.