After 20+ years of successful operation, Don decided to retire and sell his oilfield services company. As the sole owner, he had always depended on his exceptional management team and dedicated employees to keep the business running smoothly and was struggling with how to transition his company without risking the jobs of his employees but also receiving enough money to meet his retirement goals.
Solution: Implement an Employee Ownership Trust
The process began with gaining a clear understanding of Don’s ultimate objectives. His personal, financial, and business goals were integrated into one cohesive Master Plan. Various options were explored, including selling to a private equity firm or a third party. However, Don was concerned about the potential impact on the company’s culture and employees. With a clear understanding of his priorities, a transition to an Employee Ownership Trust (EOT) was proposed, enabling employees to take ownership.
The advantages and disadvantages of this structure were thoroughly explained, including costs, significant tax incentives, and the ability to preserve the company’s legacy. To ensure a smooth and comprehensive process, the expertise of a business valuation expert and an EOT transaction team was engaged, along with close coordination with Don’s accountant and lawyer to ensure alignment among all parties involved.
End Result
- John successfully secured the fair market value of $15 million for his business, with no contingencies or conditions.
- The first $10 million tax-free capital gains exemption offered by the EOT and spreading the remaining $5 million across the 10-year capital gains reserve to defer taxes.
- The structuring the sale to the EOT to provide John with payments over a period of 10 years and we invested it to ensure a steady income stream during his retirement into tax efficient.
- By establishing a comprehensive estate plan that included trusts and other strategies that ensured he was able to provide for his family and minimize tax liabilities.
- Employees received an ownership stake in the company without having to invest their own money.
- As owners, employees became eligible for profit-sharing plans, enabling them to build wealth and save for retirement through their ownership stake in the company.
Want more information on an Employee Ownership Trust?
Check out the Government of Canada’s website
