Employee ownership: Pros and cons of selling your company to your staff

At a glance

• A growing number of business directors are making the decision to pass a controlling stake in their company to their employees.
• Employee-owned businesses enjoy various tax advantages and often experience higher productivity and greater economic resilience.
• Employee ownership can be a complex and time-consuming option. It is important to take expert advice. 

The last five years has seen a rapid increase in the number of employee-owned businesses in the UK, with 30% year on year growth, according to the Employee Ownership Association (EOA). The number of employee-owned businesses was 650 in 2020, by the end of 2025 this had soared to around 2,800.¹

Nobody knows your business and its culture better than your own employees. Could selling it to them be an effective way for you to exit your business? Our article explains more.

For small business owners, employee ownership can be a challenging exit option. But an increasing number are finding it worthwhile. It can offer substantial benefits for the owner, the staff and the business – including some tax advantages.

Around 2,300 businesses have made the transition to employee-owned in the past five years, with total employee owners in 2026 standing at more than half a million, according to the EOA.

The rise has been down to a number of factors. These include increased awareness of the options among firms and advisers; and the Covid 19 pandemic forcing owners to plan succession.

A further benefit of employee ownership is how it can drive a sense of purpose among staff. It supports more sustainable business models built around local jobs and communities, while giving organisations greater confidence to plan for the long term. It also encourages more open, inclusive ways of working, with clearer decision-making and strong employee involvement.

Why employee ownership?

Using employee ownership as an exit strategy involves either transferring shares to individual employees directly, or indirectly, by creating an employee ownership trust (EOT) to hold shares on employees’ behalf. Alternatively, it could combine direct and indirect ownership.

EOTs can provide an effective exit for SME shareholders when a trade buyer is hard to find, or they are concerned buyers won’t protect employees’ interests or the culture.

For most businesses, retaining and motivating employees is critical, and equity ownership is a proven way to incentivise them.

The advantages of employee ownership

One of the primary advantages of employee ownership is the tax benefits it offers. For example, direct employee ownership can use tax-advantaged share plans, such as enterprise management incentives or company share-option plans.

EOTs also offer significant tax benefits for individuals who are selling their businesses. That’s because Employee Ownership Trust (EOT) relief reduces the amount of capital gains tax (CGT) due on disposal of shares in a trading company to the trustees of an EOT where the relief conditions are met.

For disposals on or after 26 November 2025 that meet the conditions for EOT relief, half of the gain on disposal is exempt from CGT. The remaining half of the gain is charged CGT according to the normal rules. Business Asset Disposal Relief (BADR) and Investors’ Relief are not available where EOT relief has been claimed.

Employee bonuses

Once the trust takes ownership, it can also pay employee bonuses free of income tax, up to a limit of £3,600. But you must meet the EOT requirements on trading, all-employee benefits, controlling interests and limited participation to qualify, so it’s a good idea to take professional tax and legal advice.

Conditions include that the employee ownership trust must retain at least 51% of the company. This means you must relinquish control, however you can protect your interests in future performance by remaining involved with the business.

Employee ownership corporate structure: nine considerations

1. Decide if the model will include all or most of your employees, or senior staff only. Then make sure all parties, including employees, are keen on the deal before you start.
2. How will employees control the company? This could be an employee council, but it’s often a combination of shareholders, senior employees and independent trustees.
3. If using the employee-ownership trust model, who will be the trustees? This is a critical decision, as they will be a key part of the future business model.
4. How will employees fund the purchase and acquire shares? For example, it could be through earn-in, buy-in, loan (including from the company or founders), profit share, bonus payments, salary sacrifice or company contributions. Often, companies pay an upfront sum from cash reserves, plus a deferred consideration from future profits.
5. Are you confident your company can continue to succeed and pay a deferred consideration? This is one reason selling shareholders often want to remain involved after the sale.
6. What incentives will employees receive – such as bonuses, share options or other equity incentives – to encourage future growth?
7. What rules will you use to deliver business outcomes? These can include clauses in which resigning or dismissed employees forfeit share rights, and rules protecting the interests of majority and minority shareholders.
8. How will you manage any potential conflicts of interest? For example, if selling shareholders are directors of the corporate trust, they must act in the interests of the trust beneficiaries. This can lead to conflicts about short-term profits versus employees’ long-term interests.

Employee ownership challenges and solutions

One challenge is that employee ownership is rarely a fast exit strategy. Experts suggest most successful plans implement over several years, such as seven to 10 years, for example. This is largely due to employees needing to be in a position to afford a buy-in. Early preparation is critical.

Employee-ownership exits tend to be more successful – with company, employees and founders all better off – when education on the strategy, how it works and how to affect performance changes are included in the implementation plan.

All parties involved must understand the financial and non-financial value drivers and risks, and how employee shareholders can help accelerate value.  Another typical challenge is that employee involvement in decisions is critical to success, but owners can be reluctant to relinquish control.

Taking personal advice

Given the copious tax and legal requirements, seeking advice is hugely important.

A successful outcome for owners also relies on planning your personal finances. For example, selling to employees often involves a deferred payment. So you need to ensure this fits with your personal goals.

We work in conjunction with an extensive network of external SME specialists, and together, we can help you achieve a holistic view of all your exit options and what you want to achieve. We can help you develop a financial plan around the sale, including taxation, investment strategies and income needs.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Exit strategies may include the referral to a service that is separate and distinct to those offered by St. James’s Place.

Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

Source¹Employee Ownership Association. Employee Owned Business Register. March 2026

SJP Approved 26/05/2026