How Employee Ownership Trusts Preserve Your Legacy and Keep Your Business Local
- Ernest Bednarz
- 14 minutes ago
- 3 min read
As a business owner, you've spent years, maybe even decades, building your company. You've cultivated strong relationships with employees, customers, and your community. But when it comes time to transition out of your business, how do you ensure that your legacy remains intact, and your company continues to thrive?
One solution gaining traction in Canada is the Employee Ownership Trust (EOT). This new legislation introduced in the 2024 Federal Budget, allows you to sell your company to your employees while ensuring long-term stability and local ownership. Plus this structure allows you to shelter up to $10 Million in Capital Gains.
In this post, we’ll explore how EOTs can help preserve your business legacy and keep your company rooted in the community.
What is an Employee Ownership Trust (EOT)?
An Employee Ownership Trust (EOT) is a new structure in Canada that enables employees to become collective owners of a company without having to purchase shares individually. Instead, ownership is transferred to a trust that holds the business on behalf of all employees. The EOT model has been widely successful in countries like the UK, and with recent Canadian legislation in 2024 supporting EOTs, they are set to become a key option for business succession planning for medium-sized companies.
How EOTs Preserve Your Legacy
1. Keeping Your Business Locally Owned
When business owners retire or sell, many companies are acquired by larger corporations or out-of-town investors. This can lead to job losses, restructuring, or even relocation. By transitioning to an EOT, you ensure that your business stays in the hands of those who know it best, your employees.
2. Sustaining Company Culture and Values
Your company culture reflects your leadership and the values you've built over time. Selling to an external buyer often results in changes in management, priorities, and workplace culture. An EOT allows your employees to carry forward the mission and values of your company, ensuring continuity for customers and staff alike.
3. Providing Stability for Employees
Employees are often the most affected by business transitions. With an EOT, they gain job security and a vested interest in the company's success. Employee-owned companies have been shown to have lower turnover rates and higher engagement, leading to long-term stability.
4. Ensuring a Smooth Transition Without Immediate Financial Burden
Unlike a traditional sale, where buyers may require significant upfront capital, an EOT allows for a gradual buyout. The company’s future profits help fund the transition, meaning employees don’t need to personally invest large sums. This makes it a more accessible and practical way to transfer ownership.
How is an EOT Taxed?
An Employee Ownership Trust (EOT) is a taxable trust, with undistributed income taxed at the top personal marginal rate and distributed income taxed at the beneficiary level.
An EOT provides business owners with a succession planning option that supports business continuity and offers a capital gains exemption of up to $10 million.
Is an EOT Right for Your Business?
EOTs aren’t the right fit for every business, but they offer a sound alternative for owners who prioritize legacy, employee well-being, and community impact and let's not forget save a boatload of tax.
If you’re considering your succession options, speaking with an expert in our EOT network will help you determine if an EOT is viable for your company. Click here to book a free consultation
At Malahat Valuation Group, we specialize in business valuations, real estate appraisals, equipment appraisals and business succession planning, ensuring you make informed decisions about your company’s future.
Malahat Valuation Group specializes in business valuation and real estate appraisals to owners of privately owned companies and their professional advisors.
When owners need to leverage, sell or reorganize their assets, we answer the age-old question "What is it worth?".
We provide our clients and their advisors peace of mind by preparing professional valuations that stand up to scrutiny from lenders, the Courts, and the Canada Revenue Agency.
Malahat Valuation Group Inc.
(250) 929-2929
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