Question 1

What is an employee ownership trust?

Accepted Answer

A structure in which a **trust holds a controlling stake in a company on behalf of all its employees**, collectively and indefinitely — rather than employees individually holding shares. It has become a significant succession route for owners who want to exit without selling to a competitor or private equity.

**How it works.** The owners sell a controlling interest — more than 50% — to a trust established for the benefit of all employees. The trust holds the shares permanently; employees do not receive shares personally and cannot sell them. The company continues to operate normally, with a board, while the trustee holds the ownership interest and represents employee interests.

**How it is funded.** Usually **out of the company's own future profits**: the trust owes the sellers the purchase price and pays it over several years from company contributions, sometimes with external finance for part. This means the seller is typically paid over time rather than in one sum, which is the main trade-off.

**Why owners choose it:**

**Succession without sale to a third party**, preserving independence, the workforce and the culture.

**Significant tax advantages**, with relief from capital gains tax on the qualifying disposal where the conditions are met, and the ability to pay employees a limited income-tax-free annual bonus.

**Speed and certainty** compared with a trade sale, since there is no external buyer to find or satisfy.

**No due diligence circus**, and no competitor seeing your information.

**What it is not:**

**Not a co-operative**, since day-to-day governance remains with a board.

**Not free shares**, since employees own collectively rather than individually.

**Not a way to sell a struggling business** — the company must generate enough profit to fund the payments, so it only works where the business is genuinely healthy.

**The honest risks:** the seller's consideration depends on future trading; management capability must exist without the founder; employee engagement has to be built deliberately or ownership remains an abstraction; and the rules have been tightened to prevent abuse, so qualifying conditions require care.

General information, not tax or legal advice.

Question 2

What is a liquidation preference?

Accepted Answer

The right of certain shareholders — almost always investors — to be paid first when a company is sold or wound up, before ordinary shareholders receive anything. It is frequently the single most

Question 3

What is the difference between articles of association and a shareholders' agreement?

Accepted Answer

The articles are the company's public constitution; a shareholders' agreement is a private contract between the shareholders. They do different jobs and most companies with more than one owner need

Question 4

What happens when co-founders fall out?

Accepted Answer

Usually a slow deterioration rather than a single argument — and what determines the outcome is almost entirely what was agreed at the start, when everyone got on and nobody wanted to raise it. Why

Question 5

What does a non-executive director actually do, and what is a board for?

Accepted Answer

A board is the body that directs the company — as distinct from managing it — and a non-executive director is a member who is not an employee, brought in for independent judgement, experience and

Question 6

What are a company director's actual legal duties?

Accepted Answer

In the UK, seven duties are set out in statute — the Companies Act 2006 — and they apply to every director of every company, including a sole director of a small one who may never have read them. The

Question 7

What is vesting, and what is a cliff?

Accepted Answer

Vesting means equity is earned over time rather than owned outright from day one. A cliff is an initial period during which nothing vests at all. The standard arrangement. Four-year vesting with a

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