Selling to Your Employees: The Employee Ownership Trust

I remember sitting down with one of my project managers after he'd lost a quote we should have won. The client had liked the work and liked him, said they'd be in touch, and signed with someone else. I asked him to walk me through the site visit, the questions he'd asked and how he'd presented the price, and none of it was bad. It just wasn't what I would have done, and I couldn't point to the place where it went wrong, because there was no written version of right. There was my way, which lived in my head, and his way, which was a reasonable guess at something nobody had ever taught him. I've told that story in sales process: get it out of your head.

I think about that conversation whenever an owner tells me he'd like to sell the company to the people who work there. It's a sound instinct, and since this spring the federal government has made it a better deal on the tax side. But if I'd sold my company to its employees that year, the tax would have been the least of our problems. The people about to own it had never been shown how it won its work.

What changed in 2026

An employee ownership trust is a trust that buys the company's shares and holds them for the benefit of the employees. The owner sells to the trust, the employees don't each have to come up with money to buy shares, and the company keeps going with the people already in it. In most cases the price isn't paid in one cheque on closing. It's paid over time, out of what the company earns.

Since 2024 there's been a federal capital gains exemption on up to $10 million of gains when a qualifying business is sold to an EOT, but it was temporary and set to end after 2026. The Spring Economic Update on April 28, 2026 made it permanent, and that change became law when Bill C-30 received royal assent on June 18, 2026. That matters because owners no longer have to rush a sale to beat a deadline. Whether your company qualifies, how the exemption works across more than one seller and what conditions come with it are questions for your accountant, and they're worth asking early. This post is about the other question, the one the tax rules can't answer.

You get paid by the team you leave behind

Here's the part that changes how an owner should look at an EOT. When you sell to an outside buyer, you hand over the company and the buyer takes the risk of what happens next. When you sell to a trust for your employees, a good part of that risk stays with you, because the purchase is funded by the company's future profits. If the managers run it well, you get paid on schedule. If they don't, the payments slow down, and you're watching from the outside a company you no longer control.

That's why I'd look at the management team before I looked at the trust deed. It isn't a question of whether your people are good at their jobs. Plenty of companies have good people. It's a question of whether those people have ever done the jobs you've been doing, because after the sale somebody has to.

Four questions about your managers

Start with pricing. Can someone other than you estimate and price the work, and has that person's pricing produced the margins you needed on finished jobs? If every bid still crosses your desk before it goes out, the company's most important decision is still yours.

Then look at relationships. Who do your best clients call when something goes wrong? Who does the bank call, and who does the surety know? If the honest answer to all three is you, those relationships have to be handed over while you're still there to make the introductions, and that takes longer than most owners expect.

Then the numbers. Can the managers read the monthly financials, a work-in-progress schedule and a cash forecast, and do they act on what they see? I'd want each of them to know the five numbers that show whether a construction business is healthy without having to ask the controller. People who are about to own a company's results need to be able to read them.

And last, decisions. When the GM and the senior PM disagree about which job gets the crew, who settles it today? If the answer is you, someone else has to be given that authority, in writing, before the sale. An EOT also brings trustees and a governance structure that didn't exist before, and the managers need to know where their authority ends and the trust's begins.

Test it before you sign

The cheapest way to find out whether the team is ready is to step back while you still own the company. Give the GM a full season of running it, with the decisions written down and handed over, and stay out of the daily work. I wrote about the difference between handing over tasks and handing over authority in delegation and empowerment, and an EOT is the far end of that idea: you're not just handing over decisions, you're handing over the company.

Watch what happens. Some teams surprise their owners, and the company runs fine. Others show where the gaps are, and a gap found while you still own the place is something you can fix. One found two years after closing gets fixed with your money.

When an EOT isn't the answer

Sometimes the test says the team isn't ready, and it won't be in the time you've got. Sometimes the company doesn't earn enough to fund the purchase without starving the work. And sometimes one manager is clearly the successor, and a direct sale to that person or a small group makes more sense than a trust. None of those is a failure. They're reasons to pick a different route, or to spend a couple of years building the team before you pick one.

The Bottom Line

The rule change took the deadline off. That's good news, because it gives an owner time to do this properly instead of quickly. Use the time. Let your accountant work out the tax, and spend your own effort on the question only you can answer: if you weren't here next Monday, would the people taking over know what to do? If they'd still be guessing at how you price and win the work, you've got work to do before you sell them anything.

If you're weighing a sale to your employees, the first piece of work isn't the trust. It's finding out whether the management team can run the company without you, and that's the work I do with owners and their managers. See how management consulting works.