Aaron Schroeder’s firm, despite not being on the market, consistently attracted offers from interested buyers. Over the years, the Vancouver-based climate engineer fielded numerous unsolicited bids, with some weeks seeing multiple offers, often from larger entities and hedge funds, particularly those in the U.S.
When Schroeder ultimately decided to sell Brightspot Climate, an engineering consultancy with branches in Vancouver, Calgary, and Toronto, he opted for a unique approach. He established a special trust to make all 40 of his employees co-owners without any upfront financial commitment from them.
Employee ownership models have been in existence in Canada for years, but in 2024, the federal government introduced a new option under the Income Tax Act known as an employee ownership trust (EOT). Since its introduction, four companies, including Brightspot, have transitioned to this ownership structure.
This shift to employee ownership comes at a critical time as Canada grapples with an aging population of baby boomer entrepreneurs looking to retire and a pressing need to bolster the national economy amidst trade tensions with the U.S.
Schroeder’s motivation behind the move was to reward the employees instrumental in building the business. He also aimed to prevent potential job losses and safeguard the company’s culture and intellectual property from being assimilated by a foreign entity.
An EOT functions as a trust that holds a company’s shares on behalf of the employees. The trust funds the acquisition of the business, with the owner being reimbursed over time using the company’s generated profits. Employees do not purchase shares but are eligible for profit-sharing.
For businesses contemplating the transition to an EOT, time is of the essence. The government offers a tax break for owners selling their businesses to employees, but this incentive is set to expire by year-end, leaving the future of EOTs in Canada uncertain.
Justine Janssen, Executive Director of Employee Ownership Canada, projects that another 20 to 30 companies will adopt the EOT structure this year. There is hope for an extension of the tax incentive, as supporting local businesses aligns with the country’s economic interests.
While challenges exist with employee ownership, such as the need for enhanced financial literacy among staff, early experiences at Brightspot indicate positive outcomes, including improved staff retention and a budding entrepreneurial spirit within the company.