We have much in common with our friends, neighbors, and allies up north. And not surprisingly, both Canada and the U.S. have the common problem of our respective Baby Boomer business owners looking for an exit strategy. Old friend Perry Phillips, President of ESOP Builders, Inc., a Canadian valuation and ESOP consulting firm, cites studies that show 70% of Canadian Baby Boomers currently running small and medium- sized businesses will want to exit by 2015. And as in the U.S., ESOPs are an effective exit strategy.
But our ESOPs are not like the ESOPs with which Perry works. U.S. ESOPs (Employee Stock Ownership Plans) are very structured programs governed by U.S. tax laws and ERISA which provide attractive tax benefits to the selling shareholders, the corporation, and the employees.
ESOPs in Canada, on the other hand, have a broader connotation. Canadian ESOPs can be a combination of three types of equity compensation arrangements: out-right share purchase, stock options, or phantom stock. And unlike U.S. ESOPs which are governed by federal law, Canadian ESOPs will vary in design and structure based on Provincial law.
But one thing Perry and I do have in common with our ESOP clients. ESOPs work best when combined with an "ownership culture". Here is a link to the supporting research compiled by the National Center for Employee Ownership, the non-profit employee ownership research and education organization.