What is the Employee Ownership Trust?

This articles briefly summarises the usual role and responsibilities of the Employee Ownership Trust in hybrid and indirect ownership trust structures

When setting up a trust-owned structure (for more on the different structures available for employee ownership, see here) an employee ownership trust will be created by way of a trust deed, which sets out the terms by which the trust must be operated.

The trust itself will be operated and run by its trustees.  The role of the trustee is to manage the assets of the trust (in this case, the shares in the company) for the benefit of the beneficiaries as a whole (in this case, the employees of the company).  The trustee role is therefore not to manage the underlying company, this remains with management and the directors, but instead is to influence the management team to ensure that the company is being led in the best way possible and that they are maximising the engagement and experience of the employees.

We would always advise that the trustee itself is a corporate body, usually a newly incorporated company limited by guarantee, and that the governing documentation (trust deed and articles of association) include provisions for the appointment of the directors of this new trust company, who will act as trustee directors and carry out the role of the trust.  The reason we advise this is a corporate, instead of a group of individuals, is that it makes ownership and management of the assets held by the trust significantly easier and cheaper to maintain.  The shares are put into the name of the trustee company and remain there notwithstanding any change in its directors.  Its directors are usually known as trustee directors to distinguish them from the directors of the underlying company.  This allows the trustee directors to rotate, retire and be added to from time to time with little administrative burden other than updating the company's statutory books and making the necessary filings at Companies House. It also means that signing any documentation is much simpler than if you have many individual trustees.

If you wish to read more about the interplay between the trust and the management team who will continue to run the company, please see our article 'How does management continue to effectively run a company when it is owned by the employees?'