Employee Ownership Trusts: How Employees Can Become Legal Shareholders for Free

May 25, 2022 FinTech and Alternative Finance, Innovation and Resources, Leadership, Productivity, Competition, Human Capital, Health, Legal Issues, Regulation, Consultation, Voices No comments

CBC Radio | May 24, 2022

Heather Payne Juno - Employee Ownership Trusts: How Employees Can Become Legal Shareholders for Free When Heather Payne, CEO of Juno College of Technology in Toronto is one of a number of Canadian business owners who are considering moving their company ownership structure to an employee ownership trust (EOT). It's a legal structure that allows employees to become shareholders without paying directly for their shares. Shares are held in trust and owners are repaid for them out of company profits. Employees can acquire additional shares over time.

The federal government said in its 2022 budget announcement that it would amend the Income Tax Act and introduce employee ownership trusts to encourage employee ownership of businesses.

Simon Pek, Assistant Professor, Peter B. Gustavson School of Business at the University of Victoria:

We can learn from other jurisdictions and also from experts and practitioners and organizations that have done this in the U.S. and the U.K. There's a high possibility that if they take the right time to reflect on this, think through the mechanics correctly, they can make … a 'made in Canada' solution that will work really, really well and meet all the objectives they have.

See: Sounds like a DAO, Looks like a DAO: Introducing the Modern Digital Organization

Public campaign for employee ownership

The government's commitment follows a public campaign from Social Capital Partners, a Canadian non-profit financing company, to create a dedicated EOT in Canada, as well as stakeholder consultations.

Jon Shell, Managing Director, Social Capital Partners:

Part of what makes EOTs so appealing is every employee becomes a shareholder of the company through the trust for free, and they earn additional shares every year, allowing them to grow their wealth over time [and] when they leave the company or retire, the company buys back their shares for cash. It gives owners a choice to sell to employees that they really like.

This gives an additional option for mid-sized companies — which Shell says are usually family- or founder-owned — to sell to. [Otherwise], their options are generally to sell to a competitor, creating more concentration in an economy; or to a third party, like a financial buyer [or] private equity fund.

See: McKinsey Global Banking: Revenue pools moving to customer-ownership with embedded digital financial services

Democratic co-ops another option in which the co-operative is owned and self-managed by the workers and have a democratic say in the running of the firm, and what's done with revenues and the strategic orientation of the business. [But] if you don't structure the democratic practices right, and if you don't kind of keep a pulse on them and improve them over time, what can happen is that a certain subset of individuals tends to take on leadership positions or even stay in those positions over time.

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