Checklist: Is an ESOP a Good Fit For Your Company? – Part 2

Our experience shows there are key attributes that suggest a company is a good candidate for an employee share ownership plan (ESOP). Read through these questions to learn if an ESOP is a good fit for your company:

(This is Part 2 of our ESOP Checklist. To view Part 1, click here.)

Employees:

Have current employees or new hires been asking about ESOPs in the company ?     YES     NO

As a rule, 9 out of 10 employees are interested in ownership.  That does not mean they will participate if asked, that depends on the design and particulars of the plan, however, they will be engaged to know more.  A properly designed and communicated ESOP should attract at least 50% participation from the employees who are eligible to join.

Do employees (some or all) belong to a union?     YES     NO

Many unions are anti-ESOP, while some are open to discussion.

Does the company have at least 6 full-time employees?     YES     NO

Generally you need at least 3 employees to start the ESOP.  There is no upper limit of employees.

Company:

Is the company a CCPC (Canadian Controlled Private Corporation)?      YES     NO

If the company is a qualified small business under the Income Tax Act as a CCPC, there are substantial tax benefits to the employees.

Does the company have ownership of foreign assets?      YES     NO

ESOPs can be international in scope but the tax issues increase in complexity.

Is the company family owned and operated?      YES     NO

A family owned and operated company can have a successful ESOP.  However, succession issues play a major role in the design.

Interested in more information on whether an ESOP is right for your company? Fill out our free feasibility survey.

You can also learn more about ESOPs at the 2016 Canadian Employee Ownership Conference.

By Perry Phillips

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