Canadian Firms Empower Employees by Embracing Ownership Over U.S. Sellouts
In recent years, an increasing number of Canadian firms have chosen to embrace employee ownership as a way to retain control and foster loyalty within their organizations. This movement is particularly noticeable among businesses whose owners face significant unsolicited offers, often from larger U.S. corporations. One notable example is Aaron Schroeder, the founder of Vancouver-based Brightspot Climate.
Canadian Firms Embrace Employee Ownership
Aaron Schroeder received numerous offers to sell his engineering consultancy but chose to take a different path. He established an Employee Ownership Trust (EOT), granting ownership to all 40 of his employees. “I wanted a model where everyone in the company could participate without any upfront costs,” he explained.
Understanding Employee Ownership Trusts
The federal government of Canada introduced new EOT provisions in 2024, amending the Income Tax Act. This initiative allows companies to transition ownership to their employees while benefiting from potential tax exemptions. Four companies, including Brightspot, have already adopted this model.
The EOT Structure Explained
An EOT holds the shares of the company on behalf of employees. Instead of buying shares, employees share in the company’s profits, which helps maintain workforce stability. The trust uses profits to reimburse the owner over time for the sale of the business. This structure aims to prevent the erosion of company culture, which can happen when selling to U.S. entities.
- Initial Sale Payments: Typically, owners receive some payment at the time of sale.
- Deferred Payments: Remaining amounts are paid over several years using company profits.
- Tax Incentives: A $10-million capital gains tax exemption is available for owners transitioning to EOTs.
Impending Deadlines and Economic Shifts
As of 2024, Canadian businesses face a demographic shift. Thousands of companies are nearing transition, with a potential revenue change exceeding $300 billion in five years. Approximately 100,000 entrepreneurs in Canada are over age 65, signaling imminent ownership changes.
Without action, many companies risk losing the opportunity to become EOTs. Tiara Letourneau, CEO of Rewrite Capital Advisors, emphasizes the urgency. “They need to start the process now or run out of time,” she stated.
Successful EOT Cases
One significant case involves Grantbook, which became Canada’s first EOT on January 1, 2025, enabling its 50 employees to gain ownership. CEO Nikki Barrett noted that this approach aligned the team’s interests, leading to enhanced cooperation and morale.
Benefits and Challenges of EOTs
While EOTs present many advantages, there are challenges. Employees may lack management experience, which can impact company operations. Additionally, founders may struggle to relinquish control. Experts agree that understanding finance and management is critical for employees in an EOT environment.
Despite the challenges, the incentive for Canadian businesses to keep operations local is clear. “From an economic perspective, incentivizing local business ownership is essential,” commented Wes Novotny, a tax lawyer with extensive experience in EOTs.
In conclusion, as firms like Brightspot Climate and Grantbook demonstrate, transitioning to employee ownership can benefit the employees, sustain company culture, and support the Canadian economy. As more firms adopt this model, the landscape of Canadian entrepreneurship is poised for significant change.
