When a business becomes employee owned via an employee ownership trust (EOT), one of the biggest changes is the way it is governed. Trustees are at the heart of this shift and play a critical role. Although the concept of trustees can feel a little abstract at first, it’s important to get your head around how it all works.
Type of trustee
When you set up an EOT, the most common way of dealing with it is to create a new UK-based limited company to act as corporate trustee. This new company will legally be the sole trustee of the trust. This trust owns the shares in the trading business for the benefit of all the employees. This trustee company will often be called “[trading company name] Trustee Ltd” or similar.
But 99% of the time you hear “trustees” discussed in the context of an EOT, it refers to the individuals who are directors/Persons of Significant Control (PSCs) of that trustee company. These people control the trustee company, so indirectly they control the trading company and are informally called the trustees.
The role of trustees in an EOT
The trustees (aka directors of the EOT company) are the people who guide the EOT, making sure it’s being run for the benefit of the employees. They don’t manage the business day-to-day; that’s the job of the leadership team in the trading company. But they do oversee the big picture.
If trustees feel the trading company’s directors aren’t acting in the best interests of the business (and the employees), ultimately they have the power to remove those directors. This is the big red nuclear button at their disposal, not something to be done lightly!
Who holds the power in an EOT?
Employee ownership is about shared power. And the trustees are one out of the three groups that hold power in an EOT. This is how it breaks down:
Trading Company Management
- Oversee day-to-day operations and business strategy
- Hire and fire employees
- Includes directors and executive team
- Reports to and is accountable to the EOT trustees
EOT Trustees
- Focus on long-term interests of employees and business success
- Required to approve particularly large/significant transactions
- Have input on profit share distribution
- Hold the trading company board accountable
Employees
- Have increased involvement through the employee trustee
- Benefit from business success through profit sharing
- Select employee trustee representative(s)
These three groups work together to create a healthy balance of power that's different from traditional ownership structures. Unlike traditional ownership where a founder or shareholders might have ultimate control, the EOT model distributes influence more evenly, ensuring decisions benefit the business and its employees for the long term.
The circle of power
The trustees have a say in big decisions and act as stewards of the trading company (on behalf of the employees), while the trading company board maintains operational control. The employees have representation through their trustee(s) and benefit directly from the company's success. This creates a circle of power where each group checks and supports the others – keeping the business balanced, fair, and focused on long-term success.
The exact definitions of when and which decisions the trustees play a role in are defined in the articles that are agreed when you set up the EOT.
How many trustees do you need?
Trustees are appointed during the transition process. At Go EO, we recommend you select three trustees. This is a practical minimum. You can’t just have one, as they’d have full control. Having two can easily lead to deadlock (disagreement on a binary decision), so isn’t ideal. Plus if you give one of the two a casting vote, it again gives them full control. This is why we suggest three. With three trustees at least two people need to approve any vote.
You can, of course, choose to have more trustees. Go EO can accommodate this in our EOT sale process (but it will involve an additional cost).
We also recommend you have three different types of representatives:
- Employee Trustee: Represents the employee voice.
- Founder/Director Trustee: Brings knowledge of the business.
- Independent Trustee: Brings balance, perspective, and experience.
Who should they be?
Trustees should be people who understand the business (or are willing to learn), can think strategically, and will act in the best interests of the company and its employees. Ideally at least one of the three would have a strong understanding of EOTs. This is especially the case if you’re new to employee ownership, which is why we recommend putting in place an independent trustee who has experience in this field.
Want to learn more about what trustees actually do? You can find out more about trustees’ roles and responsibilities in our trustees’ job descriptions.