Over the last few years, Employee Ownership Trusts (EOTs) and Perpetual Purpose Trusts (PPTs) (note that EOTs are really same legal instrument – the difference is whether they focus on protections for the employees or for the company’s mission in general) have been promoted as the next big thing in alternative ownership and succession planning. They’re often framed as a more “mission-aligned” alternative to ESOPs or traditional shareholder-owned corporations.

But beneath the buzz is a hard question that every founder, owner, and advisor must ask:  What real problem does an EOT or PPT solve, and is it the right tool for this business?

This post offers a grounded practitioner’s view of EOTs/PPTs: what they are, what they actually do, where they shine, and where skepticism is not only healthy but necessary.

 

What Problem Are EOTs/PPTs Trying to Solve?

At a high level, EOTs/PPTs are designed to address two core concerns that come up again and again in succession conversations (and even for early stage companies thinking about long-term fidelity mission long before succession is being considered):

1. 1. Mission preservation
      • “How do we keep this company aligned with its values after I’m gone?”
      • “How do we avoid a sale that strips out the culture, excellent treatment of employees, community relationships, or environmental commitments?”
   2. Decoupling mission from financial equity ownership
      • In conventional corporate structures, shareholders hold both control rights and economic rights (dividends, liquidity, etc.), which can result in the drive to increase financial returns displacing the commitment to mission.

In other words, these structures are about locking in purpose and removing conventional equity owners from the governance picture—often permanently.

 

How EOTs/PPTs Differ from ESOPs, Co‑ops, and Traditional Corporations

It’s helpful to see EOTs/PPTs in context:

ESOPs (Employee Stock Ownership Plans)

• • ESOPs are retirement plans regulated under ERISA.
  • Employees are beneficial owners of stock held in trust for their benefit.
  • Value is usually realized when an employee retires or leaves and their account is cashed out.
  • The ESOP trustee is a regulated fiduciary with a statutory duty to act in employees’ financial best interests.

How EOTs/PPTs differ:

• • In a typical PPT/EOT, employees are not legal or beneficial owners of equity.
  • The trust is a purpose trust, not a retirement plan.
  • Employees may receive profit sharing and may participate in governance through a trust stewardship committee, but they do not have enforceable ownership rights in the same way ESOP participants do.
  • ESOPs cost hundreds of thousands of dollars to set up and to maintain over time, while EOTs/PPTs are much more affordable with reduced ongoing maintenance costs.

Worker Cooperatives

• • Members = workers; they directly hold ownership and governance rights, which usually includes the right to elect and remove board members and participate in major decisions like the sale of the company.
  • Governance is direct, not mediated through a separate trust.
  • There’s a tight connection between work, profit sharing, mission, and control.

How EOTs/PPTs differ:

• • EOTs/PPTs rely on indirect governance:
    • A trust owns the company.
    • Employees may influence the trust, but they do not directly own or control the business entity.
  • That indirect structure means more complex roles and legal architecture, and different cultural dynamics than a co‑op.

Conventional Shareholder Corporations

• • Shareholders hold economic rights (distributions, sale proceeds) and control rights (board elections, major decisions) (note that it is possible to have shareholders without control rights, but this is not how a conventional corporation is set up).
  • Mission can be written into bylaws or policies, but those can be changed easily by shareholders.

How EOTs/PPTs differ:

• • A properly structured EOT/PPT removes all or a portion of control from equity holders:
    • No person or institution has a legally enforceable claim to residual economic value.
    • The trust’s purpose replaces shareholder return as the primary guiding imperative of the company.
  • This is a fundamental divergence from the shareholder-centric model.

 

The Heart of the Structure: Purpose Trusts

EOTs as we’re talking about them here are built on purpose trust architecture.

What is a purpose trust?

Under U.S. state law, a trust is not a business entity; it’s a legal relationship among:

• • a grantor (or settlor) who transfers assets into trust ownership,
  • a trustee who holds and manages those assets in accordance with a trust plan, and
  • beneficiaries (in classic trusts) or a purpose (in purpose trusts) whose interests the trustee is required to consider when managing the trust assets.

Traditional examples:

• • Family/dynastic trusts – wealth passed down to human beneficiaries but controlled by a trustee so that the beneficiaries are constrained in how they can use the assets.
  • Charitable trusts – assets stewarded for a charitable purpose rather than named individuals.
  • Pet or cemetery trusts – where there’s no human beneficiary, but a specific purpose is to be carried out.

EOTs/PPTs are similar to pet or cemetery trusts: no human beneficiaries; the “beneficiary” is the purpose itself.

 

The Governance Roles Inside an EOT/PPT

The process of transferring property into the purpose trust is a complex and fraught transaction, involving multiple tax considerations. Once a purpose trust owns the company (or a portion of the company), governance usually looks like this:

1. 1. The Operating Company (OpCo)

• • • Typically a public benefit corporation taxed under Subchapter C (sometimes an LLC taxed as a C corporation).
    • Has a board of directors and a management team (e.g., CEO), just like any other corporation.

1. 2. The Trust as Shareholder

The trust is the sole or one of the shareholders of OpCo. Inside the trust architecture, there are usually three key roles:

A. Trustee

• • • The legal representative of the trust.
    • Holds title to the shares.
    • Signs shareholder consents and other documents.
    • Often a professional trust company in the jurisdiction where the trust is formed (e.g., Delaware).

In contrast to an ESOP trustee, EOT/PPT trustees are often administrative and minimalist, not deeply involved in day‑to‑day decisions.

B. Trust Stewardship Committee

• • • A group (often including employees) that articulates and interprets the purpose of the trust, which is described in the trust plan (aka trust agreement).
    • Functionally, it plays a role analogous to a “legislative body” for the trust:
      • Creates and maintains the profit-sharing policy (within the limits described in the trust agreement).
      • Provides direction to the trustee on how to vote shares including appointing or removing OpCo directors.
      • Serves as the primary site of employee representation and voice in governance.

Although this is where most “employee involvement” happens, it is crucial to remember:  Trust stewards are not owners. They are participants in a governing body that exists to carry out the trust’s purpose. The trustee is actually the owner of the company.

C. Trust Enforcer (or Protector)

• • • A statutory role in some purpose trust regimes (e.g., Delaware).
    • Holds legal standing to:
      • Enforce the terms of the trust,
      • Sue or remove the trustee, and
      • Sometimes remove or replace members of the trust stewardship committee.

If we extend the constitutional analogy:

• • • Trustee = minimalist executive
    • Stewardship Committee = legislature
    • Trust Enforcer = judicial branch

Because employees are not beneficiaries, they cannot enforce individual rights against the trust the way an ESOP employee can. The enforcer is the designated party who can ensure that the trust actually does what it says it will do.

 

The Perpetuity Question: Why Jurisdiction Matters

EOTs/PPTs are inherently tangled up with the rule against perpetuities and its modern statutory modifications.

Historically, common law was wary of “dead-hand control” over assets:

• • Trusts could not last forever.
  • After a certain period (often framed as “lives in being plus 21 years”), the law would break up the trust to keep wealth flowing into productive use.

Modern “perpetual trust” jurisdictions have rolled back or modified that principle. For EOTs/PPTs, that means looking for states that:

1. 1. Permit trusts to exist in perpetuity or for very long durations, and
   2. Allow purpose trusts without ascertainable human beneficiaries.

In practice, most EOT/PPT work in the U.S. converges on a small handful of jurisdictions, particularly:

• • Delaware
  • South Dakota
  • Oregon (notably for its specific stewardship trust statute)

The choice of situs (jurisdiction) is not a mere formality; it is a core design decision that shapes:

• • How long the trust can last,
  • What kinds of purposes are enforceable,
  • How the trust agreement can be enforced, and
  • What roles (like trust enforcer) are recognized.

 

The Tax Architecture: Where Things Get Risky

The tax dimension of EOTs/PPTs is both crucial and under-discussed in the public narrative.

Key Questions

When a founder wants to move a company from their personal ownership into a trust, we must ask:

1. 1. How do the shares move from founder to trust?
      • At fair market value?
      • For less than full and adequate consideration (i.e., partly gifted)?
      • Do funds flow from OpCo to the founder, from OpCo to the trust to the founder, or some other way?
   2. How is the trust itself taxed?
      • As a classic trust with higher tax rates?
      • As a business trust taxable as a corporation?
      • As part of a consolidated group with the operating company?
      • As a grantor trust, which is disregarded for income tax purposes, with all tax items passing through to the grantor?
   3. What are the estate and gift tax implications for the founder?
      • Are we triggering gift or estate tax concerns?
      • Do we create a risk that the IRS later pulls assets back into the founder’s estate (e.g., under IRC §§ 2035, 2036, 2038)?
      • Has anyone properly started the statute of limitations clock by filing appropriate gift tax returns?

When Might an EOT/PPT Make Sense?

Despite the complexity and risk, EOTs/PPTs can be powerful solutions when:

• • Mission preservation is paramount, and conventional buyers or exits could be misaligned with that mission.
  • The founder wants to remove private equity-style exit pressure and is comfortable forgoing the maximization of shareholder upside in potential conflict with the company mission for themselves or their heirs.
  • There is strong alignment around employee participation in governance, but direct cooperative ownership is not a fit culturally, financially, or legally.
  • An ESOP is not a fit due to its high cost and the potential conflict between the trustee’s fiduciary duty to maximize the trust beneficiaries’ financial return with the mission of the company
  • Everyone involved understands that this is not just a new “product,” but a fundamental re‑wiring of ownership, control, and economic rights.

In these cases, a well‑designed EOT/PPT can:

• • Embed long-term mission in legally binding form.
  • Provide ongoing profit sharing and a real voice in governance for employees.
  • Protect the company from being sold off or changed in ways that undermine its purpose.

 

When Caution (or Alternatives) May Be Wiser

EOTs/PPTs may not be the right fit when:

• • The primary goal is simply to “give the company to the employees” – an EOT/PPT does not put ownership in the hands of the employees.
  • The founder is not comfortable with perpetual or near-perpetual commitment to a particular purpose.
  • The business needs to remain highly flexible in its capital structure, investor relationships, or potential strategic exits.

In many situations, it is entirely reasonable to ask:

Do we actually need a purpose trust, or can we accomplish our goals with simpler, better-understood structures already available under corporate or nonprofit statutes?

That question should be on the table in every serious EOT/PPT conversation.

 

How We Approach EOTs and PPTs at JWPC

Our firm does not see EOTs and PPTs as magic bullets. We see them as some of many advanced tools in a large toolbox that:

• • Require careful problem definition first – in other words, what problem are you trying to solve and which tool is best to solve it.
  • Demand interdisciplinary planning (corporate, tax, trusts & estates, culture, and operations).
  • Should be evaluated against all the other options in the toolbox—ESOPs, co‑ops, traditional buyouts, non-stock entities, and more.

Our role is to help clients:

1. 1. Clarify the “why.”
      • What are you really trying to preserve or accomplish?
      • What are you afraid will happen without an intentional structure?
   2. Right-size the solution.
      • Is a purpose trust truly necessary here?
      • Could other entity forms accomplish the same goals more simply?
   3. Design with humility and care.
      • Assume complexity introduces risk.
      • Ask what happens if things don’t go according to plan—legally, tax-wise, or culturally.
   4. Identify and mitigate tax and estate risks early.
      • Involve qualified tax and estate professionals.
      • Avoid designs that depend on aggressive or untested assumptions.

EOTs and PPTs will likely remain a growing part of the alternative ownership landscape. Our commitment is to support their thoughtful, honest, and grounded use.

If you’re a founder, owner, or advisor considering an EOT or PPT—or if you’ve already been pitched on one and want a second opinion—we’d be glad to help you explore whether it’s truly the right tool for your goals.

 

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Disclaimer: The information contained in this article is for general informational purposes only and does not constitute legal advice. The content provided should not be relied upon as a substitute for consultation with a qualified attorney. For specific legal questions or situations, please consult with a licensed legal professional who can provide advice tailored to your particular circumstances.