Beyond the Traditional Sale: Two Succession Options You May Not Have Considered

When you start thinking about stepping back from your business, the most obvious succession options may be passing it to family or selling to an outside buyer. But what if the next owners are potentially already working for you?

For some business owners, selling to the people who already know the company can be a viable alternative that offers another path forward. Two possible options worth knowing about are a management buyout (MBO) and an Employee Ownership Trust (EOT).

They work very differently, and neither will be right for every business. However, both can be worth exploring if maintaining continuity, protecting your company culture, or providing opportunities for the people who helped build the business are important parts of your succession plan.

Option 1: Sell to your management team

In a management buyout, one or more members of your existing management team purchase some or all of the business.

For an owner with a capable leadership team already running much of the company, there can be some natural advantages. Your managers know the employees, customers, suppliers, operations, and culture. That familiarity can help reduce some of the disruption that may come with bringing in a completely new owner.

An MBO may be worth considering if:

• You have and would like to reward your managers who are interested in becoming owners and capable of leading the business;
• Maintaining continuity for employees and customers is important to you;
• You would prefer to transition gradually rather than leave immediately; or
• There isn’t a family member who is interested in or suited to taking over.

Of course, being a strong manager doesn’t automatically mean someone is ready to become an owner. Your management team will need to consider the financial commitment, additional responsibilities, and risks that come with ownership.

Financing can also be a significant consideration. An MBO may involve a combination of the buyers’ own resources, financing from lenders or investors, and potentially financing from the seller. The right structure will depend heavily on the value of the business, its cash flow, and the financial capacity of the buyers.

That makes establishing a realistic value an important early step. If you’re not sure where to begin, we’ve previously looked at why a business valuation can be particularly useful when planning a sale or succession.

Option 2: Sell through an Employee Ownership Trust

An Employee Ownership Trust, or EOT, offers a new and different way to transition a business to its employees.

Rather than individual employees purchasing and directly owning the company shares, an EOT is a trust that acquires and holds shares of a qualifying business for the benefit of its employees. This can allow employees to participate in the future of the company without requiring each employee to personally finance a purchase of its shares.

EOTs are relatively new in Canada, with the federal tax rules applying to qualifying business transfers beginning in 2024. They may be worth exploring where an owner wants to preserve the business as an independent company, maintain jobs and culture, and give employees control and opportunity to benefit from its future success. There may also be a significant tax incentive for qualifying sales. In June 2026, the federal government made permanent a capital gains exemption of up to $10 million for qualifying business transfers to EOTs and worker co-operatives.

That said, EOTs come with detailed eligibility, ownership, governance, and tax requirements. Not every business or transaction will qualify, and the potential tax benefits shouldn’t be the only reason for choosing this route. An EOT needs to make sense for the business, the employees, and the departing owner.

For that reason, the first step generally isn’t figuring out how to create the trust. It’s determining whether employee ownership fits your broader succession goals in the first place.

MBO or EOT: What’s the difference?

Although both options can keep ownership connected to the people already working in the business, the basic distinction is relatively straightforward.

With an MBO, specific members of your management team become the owners. They take on the financial commitment and responsibility that comes with acquiring and operating the company.

With an EOT, a trust controls and holds the company shares for the benefit of a broader group of employees. The employees don’t individually purchase and own those shares in the same way as the buyers in an MBO.

The better option, if either, depends on your circumstances. You may have a small group of managers who are ready and eager to take ownership. Alternatively, broader employee ownership may better reflect what you want for the company after you leave.

Start with what you want the transition to accomplish

Before pursuing an MBO, EOT, family transfer, or third-party sale, consider what matters most to you:

• How much do you need to receive from the business to support your own plans?
• Do you want to leave immediately or remain involved during a transition?
• How important is preserving the company’s culture, employees, or independence?
• Are the people inside the business ready to take it forward?
• What are the tax implications of the different options?

The answers can affect everything from valuation and financing to the structure and timing of the transaction.

Tax planning is particularly important before committing to a sale structure. Our article Considering Selling Your Business? Know the Tax Implications provides a broader overview of some of the tax considerations that may come into play.

Your successor may already be closer than you think

Family succession and third-party sales remain important options, but they aren’t the only ways to leave a business in good hands. For the right company, a management buyout or Employee Ownership Trust could provide another path for transferring what you’ve built to people who already understand it.

The key is to start exploring your options before you need to make the transition. Our Business & Succession Planning, Business Valuation, Corporate Reorganization, and Tax teams can help you compare the alternatives and understand how each could affect you, your business, and what comes next.

If you’re thinking about stepping back from your business, reach out to your DMCL advisor to start the conversation.