How it works

How can you get the full value of your business when you sell to your employees, at no cost to them personally?

With an employee ownership trust.

Photo women sit at table in storage room with a laptop

There are 5 parties
to any EO transaction:

1

The
Seller

The current owner of the business is the seller.  That individual (or group) shareholder has the sole authority to choose who will buy the company.

2

The Buyer/
The Trust

For the employees to become owners, an Employee Ownership Trust must be formed. This Trust allows employees to own the shares as a group in a tax-effective way, without requiring individual employees to purchase and manage them. The Trust becomes the purchaser and manages the responsibilities of ownership on behalf of the employees.

3

The
Corporation

The corporation is the thing being sold. It will provide the cash flow to service the buyout debt, and later to generate profit and company growth.

4

The
Employees

For the employees to become owners, an Employee Ownership Trust must be formed. This Trust allows employees to own the shares as a group in a tax-effective way, without requiring individual employees to purchase and manage them. The Trust becomes the purchaser and manages the responsibilities of ownership on behalf of the employees.

5

The
Financier

Since employee owners do not bring their own equity to the purchase of the company, employee ownership transitions are 100% debt financed. Bank financing is essential to make these transactions possible.

Flowchart of a saleFlowchart of a sale

This image is an example only.

Anatomy of an EO Sale

EO sales are financed 100% by debt and company cash.
At the time of the transaction, the seller will receive the amount of the bank loan issued for the transaction and any cash built up in the company for the buyout. The remaining amount will be financed by a “seller’s note”. This is a loan from the seller, to be paid out over a period of time.
The majority of company stock is sold to the EO Trust, on behalf of all employees.
In the case of a hybrid model, some stock may also be sold directly to select employees.
Sellers who don’t get paid out right away may also receive warrants, which are a form of synthetic equity. This allows sellers to participate in the growth of the value of company shares while they wait to be fully paid out.

If you are considering selling your business to your employees and want to understand the intricacies involved,
let’s talk.

EO transactions are complex and require knowledgeable advisors.

We helped build Canada’s Employee Ownership Trust legislation.

We are uniquely positioned to successfully transition your company to an employee-owned business.