Where is the money coming from?

Are you thinking about selling your business to your employees, but you’re stuck because you don’t think your employees can afford it? Maybe you think you’ll have to give the company away to your employees in order to preserve your legacy, and lose out on the upside.

These problems are exactly what the new Canadian Employee Ownership Trust (EOT) legislation was designed to solve.


Let’s look at an example of a mid-sized UK agricultural company, Riverford Organic Farmers. Riverford’s owner sold the whole business to its employees using an EOT.


Founder Guy Singh-Watson was tired of pushing paper as a management consultant and yearned to create something “practical and honest”. He started Riverford Organic Farmers over 36 years ago with a borrowed tractor and a wheelbarrow, selling his harvest from the back of his car. Now the company delivers organic vegetable boxes to 60,000 UK households every week. The business grew about 30-40% each year over 36 years, expanding from a mere $6000 in the first year to an astonishing $100 million today. Riverford currently has about 1100 'co-owners', a term they prefer to use for their employees because of their shared sense of responsibility and belonging.

Before it was time to sell the business, Guy knew that he wanted it to go to his employees. He had seen other values-driven businesses sell to large corporations and the results had been disastrous to the culture. In pursuit of a better succession plan, Guy looked at all the other available options: “We went to visit a lot of businesses that were employee-owned, but also that were cooperatively-owned, that were community interest companies, all the alternative structures of ownership, and settled on employee ownership as being the one.” Not only was the structure inclusive of all the employees at no cost to them personally, it was also easy to fit to his existing corporate structure. In the UK, there was legislation in place to make the transition tax-efficient for both the selling owner and the employees.  

In 2018, Guy sold 74% of his shares to an Employee Ownership Trust. He received some money right away from a bank loan that the company took out for the sale. For the amount that remained to be paid, Guy issued seller’s financing, which allowed the company to pay him out over a five-year period. When both the bank loan and his seller’s loan had been paid out, Guy was able to sell his remaining 26% stake in 2023, making Riverford 100% employee-owned. He said the transition wasn’t fast, but it lived up to and exceeded his ideals.

Many of Riverford’s employees were farmers, laborers, and delivery drivers, and did not have equity they could bring to the deal. Employee Ownership Trusts are designed with this in mind: the sale is paid for not by equity, but by the cash flow of the business itself over a period of time. It takes a little longer to get the full amount of the sale price out of the business and into your pocket, but you do get the full value for the company. It also means that the employees become the owners not by paying out of pocket, but by keeping the company running and growing its value. 

Selling to your employees via an EOT allows you to preserve your legacy and protect your employees into the future. What’s more, like in the UK, there are tax benefits for owners who sell their shares to an EOT. If you sell to an Employee Ownership Trust in Canada in 2024, 2025, or 2026, you can benefit from a  capital gains tax exemption on the first $10 million of the sale value. Depending on your province, that’s up to $3.6 million in savings.