Employee Ownership Trusts: Frequently Asked Questions (FAQs)

Whether you’re planning your own business succession or helping a client explore theirs, you’ve probably heard about employee ownership models like ESOPs, worker cooperatives, or profit-sharing plans.

But there’s another model that’s quickly gaining traction, especially among values-driven owners: the Employee Ownership Trust (EOT).

If you’re wondering how EOTs work, who they’re right for, and what it takes to make the transition, you’re not alone. At Common Trust, we talk with business owners and advisors every week who ask questions like: What exactly is an EOT? How does it work? Would this be a good fit for my company or client?

This FAQ provides clear, practical answers to the questions we hear most often. Think of it as a starting point to help you decide whether employee ownership through an EOT could be the right path for you and your company.

Key takeaways:

• An EOT is a flexible, values-aligned exit option for business owners.
• Employees benefit without having to buy in or take on personal risk.
• The company can remain independent with a structure designed to last.
• EOTs work best for stable, profitable businesses.

‍

What is employee ownership?

At its core, employee ownership is a succession planning strategy that gives employees a meaningful stake in the business — not just financially, but also in its culture and long-term success.

Some common employee ownership models include ESOPs, worker cooperatives, direct share ownership, and Employee Ownership Trusts.

An EOT is often one of the most straightforward and flexible exit strategies for owners who want broad-based ownership, particularly for companies that want to remain independent after an ownership transition.

‍

What is an Employee Ownership Trust (EOT)?

An Employee Ownership Trust is a purpose-driven trust that holds some or all of a company’s shares for the benefit of its employees. It’s designed to ensure the company is run — and profits are shared — for the long-term benefit of the people who make it successful.

Key features of an EOT: 

• Collective ownership: The business is held in a trust for the benefit of employees, not sold to individuals.
• No employee buy-in: Employees don’t purchase shares or take on personal debt to become owners.
• Shared profits: Profits can be distributed through profit-sharing or other incentive plans, based on factors like tenure, seniority, performance, or more
• Mission-aligned governance: The trust operates with guiding principles focused on employee benefit and long-term business continuity.
• Ownership tied to employment: Shares are collective, not linked to individual tenure or retirement accounts.
• No buyback obligations: When an employee leaves, their share of economic benefit remains in the EOT. Ownership stays with the trust, avoiding the need for a costly repurchase process.‍
• Sustainable independence: The structure supports long-term independence and preserves the company’s mission.

Unlike an ESOP (Employee Stock Ownership Plan), which is regulated under ERISA by the Department of Labor, an EOT is governed by standard trust law. This gives it more flexibility in design and governance, with lower ongoing costs.

Do employees actually “own” the company in an EOT?

Yes — but through indirect ownership rather than individual shares.

The trust owns the business on behalf of the employees, so no one holds personal shares they can sell. Instead, the team benefits collectively through the trust’s guidelines: who participates, how decisions are made, and how profits are shared.

For employees, this often looks like:

• Profit-sharing or other incentives tied to business performance.
• A stronger voice in governance.
• Stability that comes with protecting company values.

Are Employee Ownership Trusts new?

Globally, no. In the UK, Employee Ownership Trusts have been the leading employee ownership model for decades, supported by national policy.

In the U.S., the number of EOT-owned companies is accelerating as more business owners look for alternatives to private equity and third-party sales. The name may feel less familiar, but EOTs are grounded in established legal frameworks and are gaining legislative support at the state level.

‍

What are the benefits of selling to an Employee Ownership Trust?

An EOT can be a business transition where everyone wins — the owner, the employees, and the business. It provides a values-aligned exit strategy that preserves the business’s independence, protects its culture, and rewards the people who helped build it.

Benefits of EOTs for business owners:

• Fair market value sale: Exit at a price supported by an independent valuation.
• Control over your succession path: Choose your timing, role, and level of involvement throughout the process.
• Preserve your company’s mission and culture: Keep your company independent and values-aligned.
• Reward employees directly: Transfer ownership internally without third-party influence.
• Seamless ownership transition: Maintain business continuity during and after the sale.
• Long-term structure: EOTs offer a sustainable ownership model with no need for resale.
• Stronger engagement: Increase employee retention and commitment.‍
• Peace of mind: Protect your legacy and secure your company’s future.

Benefits of EOTs for employees:

• Wealth building: Increased take-home pay through profit-sharing, bonuses, or other incentives tied to company success.
• Voice in governance: Opportunities to participate in decisions without added day-to-day responsibilities.
• Greater transparency: Insight into company performance and direction.
• Shared purpose: Build a stronger sense of mission and connection to long-term success.
• No financial risk: Ownership benefits without having to buy in.

‍And for the business as a whole? Employee-owned businesses often see stronger retention, higher productivity, and resilience — even during downturns.

{{cta-short}}

What types of businesses are a good fit for an EOT?

EOTs work well across industries and company sizes, but they’re not a one-size-fits-all employee ownership model.

EOTs tend to work well for:

• Owners seeking a fair, mission-aligned exit.
• Companies with solid cash flow (~$300,000+ EBITDA) and clean financials.
• Businesses with a capable leadership team in place (or leaders who can be developed).
• Owners wanting to avoid selling to private equity or competitors.
• Founders focused on long-term continuity.

EOTs generally aren’t a good fit for:

• Unstable or unprofitable businesses.
• Owners prioritizing maximum tax advantages.
• Owners seeking an immediate exit without a succession team in place.
• Businesses requiring individual licenses (medical, legal, accounting, etc.).

Sometimes, a business falls somewhere in the middle. In those cases, careful planning and the right adjustments can improve the viability of an EOT.

‍

How does the EOT sale process work?

While each deal is different, most follow a similar process:

1. Valuation: An independent, third-party determines the business’s fair market value.
2. Trust design: A legal trust is created to hold company shares on behalf of employees and codify its purposes.
3. Sale: The owner transfers shares to the trust.
4. Repayment: The sale price is typically financed through the company’s cash flows and/or external capital.‍
5. Governance: A trustee board ensures alignment with the trust’s mission.

‍

How are Employee Ownership Trusts financed and valued?

The valuation for an Employee Ownership Trust follows a traditional valuation process, including income-based, market-based, or asset-based approaches.

Sales are usually financed through a mix of:

• External financing: Bank debt, mezzanine debt, or equity.
• Seller financing: The owner is paid over time from company profits.
• Company cash flow: Profits are used to help repay the purchase price.

Unlike some other models, employees aren’t required to buy shares directly or take on personal debt — keeping ownership accessible across the workforce.

For a deeper dive into how the money works in an EOT, take a look at this guide.

‍

Do employees need to invest money in an EOT?

No — a key difference between EOTs and other employee ownership models is that employees aren’t required to contribute cash or take on debt to participate. This feature makes ownership accessible across the workforce, particularly in businesses where employees might not otherwise be able to afford purchasing the company from the selling owner.

‍

How long does it take to transition to an EOT?

Transitions can take 4 to 8 months, depending on the complexity, financing, and legal setup — but the timeline can be adjusted to work best for you and your business.

‍

What happens after selling to an EOT?

After the sale is finalized, we often see businesses continue as usual with leadership staying in place — but with a few key differences:

• Company profits help repay the seller and fund employee benefits.
• Trustees ensure alignment with the trust’s mission.
• Employees gain greater transparency and representation.
• The company’s values, culture, and independence are protected for the long haul.

Interested in how a company can thrive after transitioning to employee ownership? Read our case study on Clegg Auto.

‍

How does governance work in an Employee Ownership Trust?

With an Employee Ownership Trust, governance is flexible — meaning you get to design your governance structure and how it operates. Often, companies maintain existing leadership while adding: 

• Trustees to oversee the mission.
• Employee representation.
• Defined decision-making processes.

‍

Are there tax benefits or incentives for EOTs?

While there are currently no federal tax programs for EOTs in the U.S., states like Colorado have introduced incentives, and we expect more to follow suit. However, cost savings can come from lower ongoing administrative and compliance requirements compared to other ownership models.

‍

What are the potential risks or downsides of an EOT?

An Employee Ownership Trust offers a flexible, sustainable pathway to employee ownership that benefits both the selling owner and the employees — but this model may not be right for every business.

Here are a few factors to keep in mind when considering an EOT: 

• The buyout must match the company’s financial capacity and performance. 
• Employees don’t hold individually sellable shares.
• Long-term success requires consistent communication, leadership, and education.
• Tax incentives vary by state.

The good news? With thoughtful planning and support, these potential challenges are all manageable.

‍

How does an EOT compare to ESOPs, co-ops, MBOs, and private sales?

If you’re weighing multiple succession paths, here’s a quick breakdown of how EOTs compare to other ownership models:

Take a look at our Guide to Employee Ownership Options for a more in-depth comparison of EOTs, ESOPs, and direct sales.

‍

How do I know if an EOT is the right succession path for my business?

As you consider whether an Employee Ownership Trust is the right ownership model for you and your team, ask yourself:

• What’s most important to my exit — speed, price, cash on close, mission, people?
• Would my team thrive with shared ownership?
• How does an EOT compare to other models I’m considering?

A clear succession plan takes time and careful planning. If you’re just at the start of your journey, our guide on timing your exit strategy for success could help.

Employee ownership through an EOT isn’t just an exit. It’s a proven way to ensure your company, your people, and your values thrive for the long term.

And if you’re ready to explore the viability of an Employee Ownership Trust for your organization, we’d love to talk. Schedule a free advisory call with one of our experts today.

‍