Canadian business owners have a new option to consider when contemplating their exit strategy: Employee Ownership Trusts (EOTs).
Announced in the 2023 Canadian budget in March 2023 is draft legislation to facilitate the use of EOTs.
EOTs allow employees to acquire ownership in their workplace, creating a more engaged and committed workforce. In addition, EOTs in Canada will be able to access tax advantages for both the business owner and the employees, depending on the specific structure of the trust.
EOTs have seen success in countries such as the United Kingdom, where they have grown in popularity over the years. Australia also has its first EOT with the Sydney-based Meld Studios.
Business owners who sell their company to an EOT can retain a degree of control, ensuring a smoother transition and continuity of business operations. Furthermore, this structure can provide a more flexible exit strategy for owners who wish to gradually step away from the business rather than sell it outright.
Employee ownership has been shown to improve employee satisfaction, productivity, and financial performance, with workers enjoying greater autonomy and a more significant stake in the success of the company. These benefits can translate to a more robust and sustainable business model that is resilient in the face of economic challenges.
The Canadian Budget provisions paving the way for EOTs in Canada, including the proposed new rules and definitions for EOT’s, the qualifying conditions, and governance arrangements can be seen here.
