Aaron Schroeder’s business, Brightspot Climate, attracted numerous unsolicited offers over the years, despite not actively seeking a sale. These offers, often from larger U.S.-based companies and hedge funds, prompted Schroeder to explore a unique approach when he eventually decided to sell his engineering consultancy. He opted to establish a special trust, enabling all 40 employees to become owners without any upfront financial obligation.
In 2024, the Canadian government introduced the concept of an employee ownership trust (EOT) through an amendment to the Income Tax Act, leading Brightspot and three other companies to transition to this model. This shift aligns with a time when many baby boomer entrepreneurs in Canada are nearing retirement, and the nation is seeking to strengthen its economy amid trade tensions with the U.S.
Schroeder aimed to reward his dedicated employees and safeguard the company’s Canadian identity by avoiding a sale to a U.S. entity, which could have led to potential job losses and cultural dilution. EOTs, like the one implemented at Brightspot, involve a trust holding company shares on behalf of employees, with profits used to repay the original owner over time.
As the deadline for the federal tax break on selling businesses to employees approaches, companies considering EOT adoption face time constraints. The tax incentive, set to expire at the end of the year, underscores the urgency for interested businesses to initiate the transition promptly to benefit from the financial advantages.
Notably, the benefits of EOTs extend beyond financial incentives, fostering employee engagement and alignment with the company’s goals. Despite potential challenges such as leadership transitions and financial literacy requirements for staff, the employee ownership model is gaining traction in Canada. Businesses like Grantbook have successfully embraced this change, with employees transitioning into owners and contributing to a shared vision of growth and success.
Looking ahead, the future of EOTs in Canada depends on potential extensions of tax incentives and the readiness of businesses to navigate the complexities of ownership transitions. While hurdles may arise, the shift towards employee ownership is seen as a positive development for local businesses, employee empowerment, and the broader Canadian economy.