Employee Ownership Trusts with Jon Shell | E108

Financial Planning For Canadian Business Owners

Jason talks to Jon Shell, the managing director and partner at Social Capital Partners. Jon is an advocate for employee ownership trusts in Canada. The episode discusses what employee ownership trusts are, the benefits they provide to employees, and the challenges faced in implementing them in Canada. The conversation highlights the changes in tax laws related to employee ownership trusts and Canada's first attempt at implementing them.

Episode Highlights

• 03:16: Jon Shell explains that the objective of the employee ownership trust structure was to provide access to ownership for those who lacked it in the economy.
• 05:12: In the UK, the concept of an Employee Ownership Trust (EOT) was established in 2014, allowing companies to allocate profit sharing to all employees and sell the company to employees at no cost. Jon highlights the success of EOTs in the UK, with numerous companies adopting this structure.
• 06:20: Jon discusses the comparison between employee ownership trusts and employee share ownership plans or stock option plans.
• 08:11: Employee cooperatives, or co-ops, are another option in Canada. They involve democratic ownership, where all employees have the right to vote on decision-making processes.
• 09:37: There is a well-known example of a massive Spanish company called Mondragon, which operates with a structure similar to Athenian democracy.
• 10:49 Jon talks about the incentive for the owner who wants to sell their business to an employee ownership plan.
• 11:11: In the UK, there was a structure that allowed people to use a leveraged buyout on behalf of employees.
• 15:23: For the vast majority of businesses, the concern about gaming the system or preventing certain types of businesses from benefiting doesn't hold true. Most businesses do not fall into the category of high-end consulting firms where only the wealthy benefit.

3 Key Points

1. Jon shares the success story of the employee Stock Ownership Plan (ESOP) in the US, which has grown to include 6,500 companies and 14 million American workers.
2. Jon explains how co-ops can be effective forms of employee ownership, but they are typically applied to smaller firms.
3. The lack of tax incentives beyond deferral is a significant drawback. It creates a situation where there is no real incentive for owners to consider employee ownership beyond personal benevolence.

Tweetable Quotes

• "Employees get access to shares at a certain price and can exercise them later to participate in the company's growth." - Jon
• "For larger companies with hierarchical structures, owners may be concerned about the risks associated with selling to a co-op, especially if the company has not operated in that manner before. Co-ops can be effective forms of employee ownership, but they are typically applied to smaller firms." - Jon
• "Setting up a worker co-op with more traditional governance and committees can be burdensome and costly. In larger companies, it may be challenging for employees to afford the shares necessary to buy the company." – Jon

Resources Mentioned

• Facebook – Jason Pereira's Facebook
• LinkedIn – Jason Pereira's LinkedIn

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