“What is an employee ownership trust?” you ask.
An Employee Ownership Trust (EOT) is a structure where a business is sold into a trust that holds the shares on behalf of all employees. Staff become beneficiaries rather than direct shareholders. This ensures the business is run for the long-term benefit of its people, rather than external investors.
The EOT differs from an Employee Share Scheme (ESS) or an Employee Stock Ownership Plan (ESOP), which typically give shares to selected individuals. By contrast, an EOT is collective. All employees are covered, and ownership cannot be traded away.
Why Choose an EOT?
Founders choose EOTs when they want to:
- Protect independence: The business remains in employee hands.
- Preserve culture: The trust structure locks in the founder’s values and long-term mission.
- Reward employees fairly: All staff share in the benefits, not just senior leaders.
- De-risk succession: Employees do not need to invest personal wealth; the business finances the transition.
- Secure stability: Continuity of jobs, client relationships, and brand reputation.
How an Employee Ownership Trust Works
The process generally involves:
- Valuation: The business is independently valued to establish a fair price.
- Trust creation: A legal trust is established to hold ownership on behalf of employees.
- Financing: The trust repays the founder over time, using company profits, vendor terms, and sometimes external lending.
- Governance: Trustees are appointed to oversee the trust, often including employees, independents, and sometimes the founder.
- Engagement: Employees are educated on what ownership means and how decisions are made.
Call-Out: EOT vs ESOP vs ESS
| Feature | EOT | ESOP (North America) | ESS (Australia) |
| Ownership | Collective trust for all staff | Individuals own shares directly or via a trust | Individuals own shares/options, often select staff |
| Employee Buy-In | No personal capital required | May involve loans or payroll deductions | Sometimes purchase required |
| Financing | Business profits, vendor finance, debt | Mix of trust borrowing, company profits, employee contributions | Company issues/grants shares, often with tax concessions |
| Governance | Trustees represent all employees | ESOP trustee or board oversight | Standard company governance |
| Cultural Impact | Strong, collective stewardship | Aligns individual incentives with growth | Mostly retention or incentive tool |
| Track Record | 1,500+ firms in UK; emerging in AU | Thousands in US/Canada | Widely used in Australia, mainly for key staff |
International Track Record
United Kingdom
- Legislated in 2014, with founders selling to an EOT receiving 0% capital gains tax if conditions are met.
- Over 1,500 firms now employee-owned, including Riverford Organic Farmers and Richer Sounds.
- Studies show employee-owned businesses often outperform peers on profitability, resilience, and staff retention.
Canada
- Introduced the Canadian Employee Ownership Trust (CEOT) in 2024, launching in 2025.
- Builds on strong ESOP tradition and tax incentives like the Lifetime Capital Gains Exemption.
- Expected to accelerate employee-led successions across industries.
The Australian Context
Australia has no formal EOT legislation yet. However, founders are adapting discretionary trusts and nominee structures to approximate the model. ESS reforms in 2022 expanded the scope of employee share ownership, but they remain best suited to key staff incentives, not full ownership transitions.
Policy debate is growing. Organisations like Employee Ownership Australia and the Business Council of Co-operatives and Mutuals are advocating for an Australian EOT regime, citing international evidence that employee ownership improves resilience and keeps profits in local communities.
Case Snapshot: Meld Studios
In 2021, Sydney-based design consultancy Meld Studios became the first Australian company to use a trust-style model for succession. Its three founders transferred ownership into a discretionary trust, which holds the company for the benefit of all employees.
The motivation was cultural as much as financial. The founders wanted to protect independence, reward staff, and ensure the business lived on its values.
Although the structure required creative adaptation — since Australia lacks EOT legislation — Meld Studios has become a reference point for employee ownership in the local market.
Lesson: Australian businesses can already apply trust-based models to achieve EOT-like outcomes, but formal policy support would make these transitions simpler and more widespread.
Risks and Challenges
- Complexity: Without a legislative framework, Australian EOTs require customised legal work.
- Cash flow risk: The business must reliably generate profits to fund deferred payments.
- Employee understanding: Without education, staff may not fully appreciate or engage with ownership.
- Uncertain policy: Australia lacks the tax incentives that have fuelled adoption in the UK.
Key Takeaways
- EOTs transfer ownership into a trust for the long-term benefit of employees.
- Proven internationally, particularly in the UK, they deliver resilience, engagement, and stability.
- Canada is following suit with the CEOT, showing growing global momentum.
- Australia lacks legislation but already has pioneers like Meld Studios demonstrating what is possible.
- EOTs can also blend with other models, such as management buyouts or ESS, to balance leadership continuity with broad employee participation.
Next Chapter: Pre-Transaction Planning
Before financing or legal structuring, the business and its people must be prepared. We will explore how to position the company, clarify goals, and ready the team for ownership.