June 03, 2026
Employee Ownership Trusts (EOTs) are becoming increasingly discussed by law firms of all sizes in terms of succession planning and acquisition. We asked Harry Winkley, a corporate solicitor at Herrington Carmichael LLP to give an outline of all things EOT and answer the usual questions that arise.
EOTs are relevant both to buyers and sellers because:
Employers – Selling
It is always a much easier path to look internally when exiting a business than to go external. Internal deals are usually with people you know, trust and like (hopefully!) whereas external buyers are an unknown.
Employees – Buying
If you are a 1-30 year PQE solicitor currently working in a SME law firm with partners at retirement age, but you are not sure about taking over the onerous responsibilities for managing and owning a law firm, the EOT route may be something to think about. Particularly useful if there are a group of lawyers considering an MBO or similar. We hope this article proves food for thought.
FAQ for EOTs
For law firm owners that are looking to finally realise the value that they have built up over time (and retire), selling to an Employee Ownership Trust (EOT) is an ever popular method of disposing of your shares in a tax efficient way, whilst also providing your employees with a greater level of involvement in the company than they currently enjoy.
What is an EOT?
An EOT is an Employee Ownership Trust, which is a trust that allows a company to become owned by its employees.
Why sell to an EOT?
There are lots of reasons why business owners consider exiting through an EOT, and these include:
- Tax efficiencies as provided certain statutory requirements are met, 50% CGT relief is available.
- Succession planning and the passing down of the legacy of the business – preserve the culture and goodwill of your law firm.
- Tax-free bonuses for employees.
- Less intensive legal due diligence / transaction process than if you were selling to a third-party buyer;
- Lower risk: the assurances provided in the sale contract will likely be far less onerous than if you were selling to a third party buyer. Risk of confidential information being shared with competitors is minimised.
What is the process to implement an EOT?
Implementation of an EOT firstly involves creation of the ‘trust’ itself, and as is stated in its name, the trust is ‘employee-owned’, this is because the employees of the trading company are the beneficiaries of the trust. The shares in the trading company are transferred from the original owners to the EOT. The employees then indirectly hold shares in the trading company because they are beneficiaries of the trust.
Where does the money to buy the shares come from?
The consideration for an EOT transaction can be satisfied in multiple ways:
- Cash – The consideration may involve a day 1 payment of the trading company’s surplus cash, together with a combination of the methods listed below.
- 3rd party loan – Funding can be obtained from a bank in the form of a loan, and this loan can be used to pay the owner for their shares. The loan will then be repaid out of future profits.
- Seller loan – This will work in the form of an ‘I.O.U’ from the trustee company to the owner.
- Deferred payments – This will involve payment of the purchase price to the owner in instalments on agreed dates for a set period of time until the full amount has been settled.
Affordability is a key factor, and the trustees must be satisfied that the financial commitments are achievable, and will not cause the company to fail. Whichever method is chosen, the trading company will contribute its profits to the EOT, to allow the EOT to pay the sellers for their shares.
What changes post-sale?
After the sale has completed, the trading company will carry on in largely the same way as it did previously, and there is unlikely to be any change to operations and day-to-day activities. This is much more straight forward than a traditional sale where post-completion the business will go through an integration with the buyer’s existing practice. However, instead of the trading company being administered by the previous shareholders, this role will be undertaken by the EOT. This means that the EOT will have responsibility for decisions at shareholder level, which can ultimately determine the direction and profitability of the company.
Who can be a director post-sale?
For CGT relief to apply, the sellers must relinquish control on completion. The sellers can, however, input on key decisions through having a place on the board, provided that they do not have a majority place.
SRA Requirements / consents?
In the usual way, the sale to an EOT involves a number of regulatory considerations (albeit these should usually be more straightforward given the arrangement is an internal sale rather than a transfer to a third-party buyer).
For example: (non-exhaustive):
ABS / Restructuring: it is very likely that an ABS is required as the trust and its non-lawyer trustees own the shares for employee benefit, meaning the firm is no longer exclusively owned by solicitors, necessitating ABS status.
Corporate Structuring: If you are not currently operating as a LTD, to benefit from the CGT reliefs you will likely need to undertake a restructure to convert to a LTD company before selling to the EOT.
Approvals: There will need to be “Manager” and “Owner” approvals for the EOT, the Trustees and certain employees.
Clients: As the firm’s clients will essentially be transferring to a new corporate entity, clients should be provided reasonable notice to transfer their file to the new entity.
Successor Practice Status: the EOT transition must comply with the SRA’s rules on successor practices as the new entity will essentially be required to take on the historic liabilities and client files of the business. Accordingly, the sellers / management team will need to work with their existing PII insurers / an insurance broker to ensure that suitable cover is obtained pre-completion.
It is for this reason that if you are considering an EOT sale, you should seek the advice of a firm who not only specialises in EOTs but also has suitable experience in the law firm M&A / the regulatory sector.
About the Main Author – Harry Winkley
Harry Winkley is a corporate solicitor at Herrington Carmichael LLP and leads the M&A team specialising in transactions within the legal sector. The article was co-authored with Sophie Protheroe & Rhian Hazeldene.
This article reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.
About The Author
