When Family Businesses Hand Ownership to Employees

by Paolo Morosetti

For most family businesses, succession is a question of who in the family will own next. Yet, as more families weigh the long-term future of their companies and the family characteristics, dynamics and expectations, another question is emerging: what if the best stewards of the business are not only in the family, but also among its employees?

As FamilyBusiness.org has highlighted in a contribution from Corey Rosen, one increasingly relevant answer is found in employee ownership trusts (EOTs). These structures are gaining ground in the UK, the US, and beyond.

Crucially, in many jurisdictions the tax regime provides strong incentives for this choice. In the UK, for instance, owners who transfer a controlling interest to an EOT can benefit from full capital gains tax relief, and employees can receive annual tax-free bonuses up to a certain threshold.

What Is an Employee Ownership Trust?

An EOT is a legal structure that holds shares of a company on behalf of its employees. Unlike direct share ownership, where employees buy and sell stock individually, the trust acts as a collective owner. It acquires shares from the founding family (either partially or fully) and ensures that employees benefit from the success of the company.

How does it work in practice?

• The family sells all or part of its shares to the trust.

• The purchase is financed either through company profits, a loan, or a combination of both.

• Employees don’t pay out of pocket. Instead, they gain indirect ownership and share in profits, often with tax advantages.

• Governance is managed through trustees and, in many cases, employee advisory boards, ensuring that employees have a voice in the future of the company.

This structure has proven to be a flexible alternative to both external sales and family-only succession.

Why Families Choose It

From the family’s perspective, transferring to an EOT offers several advantages:

• Legacy protection: Selling to employees rather than to competitors or private equity ensures continuity of the firm’s culture and mission.

• Liquidity: Families receive fair value for their shares, often in a tax-efficient way. This depends on the specific tax context, but in the UK it is preferable to transfer the majority to access the full tax advantages.

• Peace of mind: Many owners feel reassured that their employees — often described as “extended family” — will safeguard the company’s future.

For some, it is also an elegant solution when the next generation is not ready, willing, or interested in running the business.

Why It Benefits the Business

For the company itself, employee ownership can be transformative:

• Motivation and loyalty increase when employees are co-owners rather than wage earners.

• Resilience improves: studies show employee-owned firms often weather economic downturns better because of higher commitment and collective problem-solving.

• Governance strengthens, since a trust typically introduces more structured oversight and employee representation.

In short, the shift from family-only ownership to shared ownership can inject new energy and a renewed sense of purpose into the organization.

The Entertainer: A Case in Point

One of the UK’s best-known family businesses recently chose this path. In August 2025, Gary Grant, founder of The Entertainer, the country’s largest toy retailer, announced that ownership of the company would pass to its 1,900 employees via an EOT.

Grant had built the business over four decades, leading its expansion across the UK and overseas. His two sons had joined the company, and the family had been active owners and leaders. Yet, instead of continuing with family-only succession, Grant decided that entrusting the business to its employees was the best way to safeguard jobs, culture, and values.

Here’s how the plan works:

• Ownership is transferred to an employee trust by the end of September 2025.

• Employees will receive annual tax-free bonuses linked to profits.

• An employee advisory board will influence decision-making.

• Leadership transitions to Andrew Murphy, a former John Lewis executive, while Gary Grant and his sons step back from management roles.

This move comes despite financial challenges — profits had declined, and the family had previously taken substantial dividends. For Grant, however, the decision was less about short-term numbers and more about long-term stewardship. The Employee Ownership Association praised it as a visionary choice, one that ties the prosperity of the workforce directly to the prosperity of the business.

What Can Other Family Firms Learn?

The Entertainer’s decision highlights a trend that cannot be overlooked: families are reimagining succession. For some, an EOT can be the right solution when:

• The next generation is not available or interested.

• The family wants liquidity without “selling out” to external buyers.

• Preserving culture, jobs, and community impact is as important as financial return.

That said, EOTs are not a universal fix. They require:

• Careful legal and financial structuring.

• Strong leadership during the transition.

• A mindset shift in both family and employees, from “us and them” to “we together.”

  
  

When these conditions are met, however, employee ownership can be a powerful succession strategy — one that combines continuity with inclusivity.

In Closing

Succession is never only about wealth transfer. It is about purpose and legacy. For some families, the highest expression of stewardship is to pass the business not just to their children, but to the wider family of employees who helped build it. As The Entertainer shows, handing over to an employee ownership trust can be a way of saying: this business belongs to all of us — and so does its future.

Refernce Photo credit: iStock # 1331252918