Canada’s New Employee Ownership Trust (EOT) Legislation

by | May 29, 2024

In a landmark move, Canada has introduced new legislation that enables the creation of Employee Ownership Trusts (EOTs). This innovative framework is designed to facilitate a transition for business owners looking to sell their companies, ensuring a sustainable and inclusive approach to succession planning. In addition, the government is providing tax incentives to companies looking to transfer control to their employees by the way of a $10 million Lifetime Capital Gains Exemption for 2024-2026. It’s worth noting that this tax benefit can also be applied to businesses transferring control to a Worker-Owned Cooperative.

The core of the Employee Ownership Trust model is its focus on transferring controlling company ownership to employees through a trust structure. Unlike traditional buyouts, EOTs provide a mechanism where employees collectively own a significant share of the business without needing to purchase the shares directly. This setup is particularly advantageous for small and medium-sized enterprises (SMEs) where employees might not have the financial resources to buy the company outright.

One of the primary benefits of the new EOT legislation is its ability to preserve the legacy of businesses. For many owners, selling to an external buyer can lead to significant changes in company culture, operations, and even location. By transitioning ownership to employees, businesses can maintain their established ethos, ensuring continuity for both the workforce and the customer base.

As with any form of Employee Ownership, having your employees as owners in your business significantly enhances engagement and motivation. Ownership often instills a deeper sense of responsibility and commitment among employees, leading to increased productivity and innovation. When employees have a stake in the success of the company, they are more likely to contribute to its long-term growth and stability.

The new legislation also provides various tax incentives to facilitate the establishment of EOTs, making it financially viable for both business owners and employees. These incentives can help mitigate the financial challenges typically associated with succession planning, providing a win-win solution for all parties involved.

If you are looking for a succession plan for your business and are wondering if an EOT or a Worker Coop is right for you, reach out. At Firefly Insights we’ve been deeply steeped in Employee Ownership for over 20 years and are perfectly suited to help you find an employee-owned succession plan that meets your goals and fits your companies unique culture. Book a time to chat now.

Meet the author

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Jennifer Williams

FOUNDER, FIREFLY INSIGHTS

Experience Matters: Over 20 years in employee ownership.

Leadership: Held key roles in a 100% employee-owned company during significant growth and change (2003-2013)

Consultancy: Successfully guided over 40 businesses on employee-ownership and through their transitions to employee ownership, building a robust portfolio of satisfied clients.

Jennifer also owns a family business transitioning to employee ownership and has designed Firefly Insights as a worker-owned consulting firm to support business owners like you.