White Paper
What Is an Employee Ownership Trust (EOT)?
Discover the Highly Customizable, Low-Cost Path to Employee Ownership
Are you looking for an optimal exit strategy that protects your company’s mission while rewarding the team that helped build it? Employee Ownership Trusts (EOTs) offer a compelling alternative to traditional ESOPs or worker cooperatives.
Fill out the form to get your free guide and discover:
- The EOT Advantage: Understand how EOTs serve as a low-cost, highly flexible option for broad-based employee ownership.
- Model Comparisons: View a clear breakdown comparing EOTs, ESOPs, and Worker-Owned Cooperatives.
- Financial & Tax Realities: Learn about setup costs, profit-sharing “waterfall” models, and financing options.
- Governance Fundamentals: Uncover how trust stewardship committees and corporate boards work together to guide your business
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Frequently Asked Questions
1. How common are Employee Ownership Trusts in the U.S.A., and what size companies use an EOT?
Currently, there are around 100 trust-owned companies in the United States, and this number is expected to grow as awareness of the employee ownership trust structure increases and state legislation evolves. An EOT is highly adaptable and can be utilized by businesses across a wide range of sizes and industries. Generally, an EOT requires a minimum of 10 employees and enough net income or EBITDA to cover the ongoing annual trustee costs. EOTs can also support large workforces, with examples including companies that employ several thousand people
2. What are the costs of establishing and maintaining an employee ownership trust (EOT)?
The initial setup costs to establish an employee ownership trust typically range from $40,000 to $80,000. To maintain an EOT, companies can expect ongoing trustee fees generally between $10,000 and $20,000 annually. While an EOT requires professional advisory support (such as trust attorneys and CPAs), the overall transaction costs can sometimes be offset compared to a traditional third-party sale, because an EOT transition does not typically require expensive business broker or investment banker fees.
3. How is profit sharing handled within an employee ownership trust (EOT)?
In an employee ownership trust, profit sharing is a wealth-building benefit extended to employees, and the specific distribution is typically determined by the board of directors, guided by company policy. An EOT frequently utilizes a “cash-flow waterfall” approach to balance financial health with employee rewards. This EOT waterfall method prioritizes financial sequence by first covering preexisting obligations, debt service, and retained earnings, before finally allocating the remaining funds to the employee profit-sharing pool.
