Management buyout or employee ownership trust: what the team taking over should know
Management buyout or employee ownership trust? One makes the managers owners. The other puts the shares in a trust for all staff. Here is how each works.
Reading time5 min read
CategoryBusiness guides
Written byThe bizbritain team
Management buyout or employee ownership trust? The difference is who ends up owning the shares. In a management buyout, the managers buy the business and own it themselves. In an employee ownership trust, a trust buys a controlling stake and holds it for every employee.
Both routes keep the business out of a stranger's hands. They ask very different things of the people running it. This guide explains each one from the management team's side, before any funding question.
Section 01
Management buyout or employee ownership trust: the short answer
The question is coming up in a lot of businesses. According to Armstrong Watson's 2026 survey of 840 family and owner-managed businesses, 44% of owners expect to leave within five years.
44%of owners expect to leave their business within five years
52%of respondents are aged 55 or over
11%favour a management or employee buyout
7%are considering an employee ownership trust
Here is the short version of each route.
Management buyout: The managers buy the shares, usually through a new company. They own the business and carry the risk of the borrowing.
Employee ownership trust: A trust buys more than half of the shares. It holds them for all employees, and no manager owns the business personally.
Section 02
How a management buyout works
In a management buyout, the people already running the business buy it from the owner. A new company owned by the team usually buys the shares.
Very few teams pay from savings. The price is normally covered by a combination of borrowing, money left in by the seller and a modest stake from the team.
The borrowing is often a loan sized to the profits of the business you already run. The seller usually agrees to take part of the price later, paid out of trading.
The upside is real. You own the shares, so you share directly in what the business becomes.
So is the risk. On most unsecured borrowing above £25,000, a personal guarantee is standard. Our guide on how to fund a management buyout sets out the full funding stack.
Section 03
How does an employee ownership trust work?
An employee ownership trust, or EOT, is a trust that buys a controlling stake in the company. Under HMRC's rules, the trustees must hold more than 50% of the shares and the votes.
The trust holds the shares for the benefit of all eligible employees, on the same terms. No individual manager becomes an owner.
Employees of an EOT company can receive bonuses of up to £3,600 free of income tax. National Insurance still applies to them.
Who funds an employee ownership trust?
Usually, the company itself. According to ICAEW, an EOT sale is commonly funded from the company's existing cash, with the rest of the price deferred and paid out of future profits.
That means the owner is often paid over time. If the seller wants more cash up front, ICAEW says bank funding is possible, or the trust itself may borrow.
HMRC's rules also say the price must not exceed market value. Any interest on a deferred payment must be at a reasonable commercial rate.
Section 04
What the November 2025 tax change means for the owner
For years, an owner selling to an EOT could pay no Capital Gains Tax on the gain. That changed on 26 November 2025.
For a sale to an EOT on or after that date, half of the gain is now taxable. The relief still exists, but it is smaller.
For some owners, that narrows the gap between selling to a trust and selling to the team. It is a reason for a fresh conversation, not proof that either route is better. The owner's own tax adviser should run the numbers.
Section 05
Questions to ask before your owner decides
Do we want to own the business?
A management buyout makes the team owners. That usually means some of your own money in, and a personal guarantee on the borrowing.
How will the owner be paid?
Both routes often pay the seller partly over time, out of future trading. Ask how much is paid at completion and how much comes later.
Can the business carry the payments?
Deferred payments and loan repayments both come out of profits. A cash flow forecast shows whether the business can carry them and still invest.
Who will run things afterwards?
An EOT company still needs directors to run it day to day. Be clear about your role, and the owner's, after the sale.
If the team wants to buy, the next step is finance. A broker can look at the profits, the seller's terms and the team's stake together, and find lenders who fund deals of that shape.
Talk to an acquisition finance broker before the owner commits to a route. On advisory deals, we take zero commission from lenders. You pay us nothing unless a lender issues an Agreement in Principle.
This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.
Got a question the guide didn’t answer? Talk to an advisor.
We’ve helped buyers fund deals from £25k to £10m across 100+ lenders. If you’ve read the guide and you’ve got a business in your sights, our advisors are on the phone now.