Employee Ownership Trusts (EOTs) have become increasingly popular as a pathway for business exits or ownership transitions. An EOT is a trust that holds a controlling stake in a company on behalf of its employees, allowing them to collectively benefit from the company’s success without having to purchase shares individually. In Canada, where traditional buyouts or family succession are often the go-to choices, EOTs—recently introduced in June—are now garnering significant interest from owners. An EOT transfer of ownership to employees can preserve company culture, benefit employees financially, ensure a more seamless transition, and maintain economic sustainability in local communities. However, EOTs come with unique challenges that business owners should carefully consider.

  1. Limited Awareness – Many Canadian business owners and advisors are unfamiliar with EOTs, making education a barrier.
  2. Complex Structuring – EOTs require legal, financial, and regulatory expertise, often not yet widely available in Canada.
  3. Tax Knowledge Gaps – While Canada offers a $10M Capital Gains Tax exemption (until 2026), owners need professional advice to understand eligibility and conditions.
  4. Financing Difficulties – EOTs require substantial funding, which can be hard to secure without reliable cash flow or informed lenders.
  5. Balancing Ownership and Operations – Employee involvement in ownership can affect decision-making and requires leadership training.
  6. Advisor Availability – Few Canadian advisors currently specialize in EOTs, so finding the right expertise is crucial.
  7. Employee Readiness – Success depends on a cultural shift and training employees for ownership responsibilities and leadership roles.
  8. Valuation Issues – EOTs must be based on fair market value, requiring independent valuation to ensure trust and fairness.
  9. Time and Cost – EOTs demand significant upfront time and resource commitments, which may deter owners seeking a faster exit.
  10. Long-Term Viability – Sustainability depends on employee engagement and leadership, which can be strengthened through structured development and support.

EOTs offer a promising exit path for Canadian business owners but come with complexity. With careful planning, education, and expert support, they can deliver lasting value for both sellers and employees.  If you would like to chat more, please reach out.