An unsolicited offer to sell may come as a surprise to a Trustee Board but see our article on why employee-owned businesses can be acquisition targets. As more employee-owned businesses grow and thrive they will attract acquirers. Whilst a sale of an employee-owned business is seldom contemplated at the outset, there may be compelling reasons for the Trustee Board to properly consider the offer. Trustee directors, unlike owner-managers, have a lot more to consider when receiving an offer for the business.

Firstly, they need to be aware of their duties owed to the beneficiaries of the Trust (the employees) and as directors of a company.

They have to ignore the interests of anyone who has a vested interest in the sale. This could be a Founder, who is still owed his deferred consideration. This person could also be a senior employee who has been given share options which become exercisable on the sale. The trustee directors have to ignore any financial benefits they may receive personally from the sale or any impact on their personal employment.

Above all, the sale has to be in the interests of the long-term prospects of the business and therefore the employees. This might be because the purchaser is better placed to fund growth and bring development opportunities for the business and the employees. Alternatively, it could be that the long-term prospects of the business are limited without some kind of change in ownership.

The purchase price and how it is paid has to be at least sufficient to cover all of the tax and other liabilities that would be payable by the Trust on the sale. The liabilities are immediate and so all of the purchase price needs to be paid in cash on completion.

The trustee directors have to know who the beneficiaries are for the purposes of the sale and that the equality treatment principle has been applied to the allocation of the sale proceeds. The employees who benefit will have to pay tax on the sale proceeds.

No trustee director wants to risk being sued by a disgruntled employee. It is highly recommended that the trustee directors have independent legal advice to help them navigate these issues. Andrew Evans and Debra Martin have a wealth of experience of selling businesses owned by an EOT and advising Trustee Boards.