Employee ownership trusts: What they mean for Canadian business owners

May 9, 2024| Blog
By Jon Shell

Employee Ownership Trusts (EOTs) are coming to Canada! This note is intended to give business owners and their advisors a simple (albeit not short) explanation about what they are, and why they should care. I’m not a lawyer or an accountant, so I’ll try to use language that I understand (and that may in some cases not be technically perfect). So, don’t take this as legal advice, but as someone trying to explain this in a way I think I would understand.

A quick point up-front: EOTs are intended for succession — a way to sell a majority of a business to a company’s employees. They don’t help with selling a minority stake in the company — there are other approaches for that, like stock option plans and share purchase programs. So, unless you’re looking to sell your business, the EOT likely isn’t for you.

However, if you are considering selling your business in the next few years, you should be aware of the EOT. Employee ownership has a long track record of being good for employees, companies and communities, and as a result the UK and US provide significant tax incentives for business owners who sell to the workers. Canada is now following suit, exempting the first $10M of capital gains from income tax for sales to EOTs. This exemption is only available until the end of 2026, so there’s good reason to look seriously at the option.

“Employee ownership has a long track record of being good for employees, companies and communities, and as a result, the U.K. and U.S. provide significant tax incentives for business owners who sell to their workers.”

EOT-like structures are quite popular in other countries, and tax incentives are only part of the story. I’ll get into more detail about the legacy and resiliency benefits later, but here are a few stories featuring owners who have sold to their employees through this structure in the US and UK: Taylor Guitars (US), Emsworth Yacht Harbour (UK) and Craggs Energy (UK). In the US about 250 companies a year are sold to their version of the EOT, and in the UK over 300 companies have sold to their version in each of the last two years.

If you’re looking for more technical detail, I’ve added links at the end, including to the government’s own EOT explainer. If you scroll down and say to yourself “man, this is too long” feel free to skip to the end and click on one of those other links instead.

If you’re still with me, you likely have dozens of questions, so I’ll try to anticipate some of them in a Q&A format here.

Alternative ownership Employee Ownership Canada (EOC)

Share with a friend

Related reading

BlogIn the media

How intergenerational inequality threatens trust in democracy | Policy Options

Our political leaders must be willing to make difficult tradeoffs to rebalance policies toward the young and away from older Canadians, write Jean-François Daoust, Liam O'Toole and Jacob Robbins-Kanter in Policy Options. The broader economic picture for younger Canadians offers little hope, and economic frustration is shown to run hand-in-hand with political alienation. As intergenerational inequality persists and deepens, Canada risks experiencing an even sharper decline in trust in its democratic institutions than what already exists. Building affordable housing and supporting young families are essential first steps in a much-needed generational reset that puts fairness at the centre of Canadian political life.

News releaseThe Ownership Solution

Smith School of Business launches new Employee Ownership Research Initiative

Smith School of Business at Queen's University is launching Canada's first-ever research initiative focused on deepening Canada’s knowledge and understanding of a powerful succession model that can enhance outcomes for owners, employees and communities: employee ownership. With funding support from Jon Shell, Chair of Social Capital Partners and a board member at Employee Ownership Canada, the Employee Ownership Research Initiative (EORI) will be housed in Smith’s Centre for Entrepreneurship Innovation & Social Impact (CEISI). The initiative will shape a made-in-Canada approach to employee ownership and create a multi-disciplinary network of academics, researchers, practitioners and businesses to fill gaps in relevant data, expertise and business-oriented resources to support employee-ownership activities across the country.

BlogThe Ownership Solution

Elbows up: Keeping Canadian companies in Canadian hands | Policy Options

Blue Jays pride notwithstanding, many of Canada's most iconic companies and brands have been quietly but steadily purchased by foreign entities in recent years. As Danny Parys writes in Policy Options, policymakers should do more to keep Canadian companies in Canadian hands by providing more support to expand financing opportunities, expanding awareness of untraditional ownership models and beefing up Canada’s net-benefit review requirements. These quiet foreign sales not only lead to major frustrations for consumers, but workers also feel the impacts because, as corporate leadership moves further away from the community, so do quality and accountability.

Skip to content