Employee ownership may be a brand-new concept for many Canadian business owners. While Employee Ownership Trust (EOT) legislation only became law in Canada in June 2024, the broader history of employee ownership in this country is decades long. By understanding Canada’s employee ownership roots, the proven success of the EOT model in the UK, and the urgent succession challenges facing Canadian businesses today, it becomes clear why the EOT has emerged as a highly relevant and timely succession planning option.
History of Employee Ownership in Canada
Long before Employee Ownership Trusts (EOTs) became part of Canadian legislation in 2024, Canada had a rich—though often under-recognized—history of employee ownership. While it evolved differently than in the U.S. or U.K., several ownership models laid the groundwork for today’s growing interest in broad-based employee ownership.
1. Early Employee Share Ownership Plans (ESOPs)
Beginning in the 1970s and gaining momentum through the 1980s and 1990s, Canadian companies began adopting U.S.-style ESOP structures. These early ESOPs were typically used as:
- Management buyout tools,
- Employee share purchase programs, or
- Equity compensation mechanisms for attracting and retaining talent.
Unlike the U.S., Canada never introduced ESOP-specific tax incentives, which limited widespread adoption. Still, hundreds of companies—especially in tech, professional services, engineering, and construction—implemented ESOPs as part of their succession or growth strategies.
2. Worker Cooperatives and Democratic Ownership
Canada has one of the strongest cooperative traditions in the world, especially in Quebec, Atlantic Canada, and rural communities.
Employee-owned cooperatives existed long before ESOPs, often emerging from:
- Community economic development initiatives,
- Employee buyouts of failing businesses, and
- Sectors where democratic governance aligned with values (e.g., food, retail, manufacturing).
3. Employee Share Purchase Programs (ESPPs)
By the early 2000s, many mid-sized and large Canadian firms—particularly publicly traded ones—introduced ESPPs.
These programs allowed employees to buy shares, often through payroll deductions, sometimes at a discount.
While ESPPs did not provide majority employee ownership, they established:
- A culture of shared ownership,
- A sense of employee investment in the company’s success, and
Increased interest in broader ownership models.
4. Natural Experiments: Employee Buyouts During Ownership Transitions
Occasionally, when founders retired or companies faced closure, employees came together to purchase the business—sometimes through a Management Buy-Out, sometimes through hybrid ESOP structures or worker-coops.
These transitions proved that:
- Employees can be effective owners,
- Locally rooted ownership strengthens communities, and
- Employee buyouts can preserve jobs and legacy where traditional buyers aren’t available.
The Succession Pressure Builds
By the late 2010s, the situation became harder to ignore.
Researchers, lenders, and policy groups warned that a retirement wave was emerging and that many business owners lacked clear successors.
That concern was later quantified in 2023, when research from the Canadian Federation of Independent Business (CFIB) found that approximately 76% of business owners expected to retire within the next decade, and many did not have identified successors.
The risk was clear:
- otherwise healthy companies could close
- be absorbed by larger or foreign buyers
- or transfer wealth and decision-making away from communities
This context sparked renewed interest in employee ownership as a potential solution.
The Model Takes Shape
Between 2020 and 2022, policy organizations, tax experts, and advisors began examining how the United Kingdom’s Employee Ownership Trust model could work in Canada. Social Capital Partners was among the organizations producing research and raising national awareness of employee ownership as a succession pathway.
Momentum grew because the intent aligned with Canada’s needs: preserve strong SMEs, protect local ownership, and give employees a stake in the business they helped build.
A Coordinated Effort Leads to Policy
In early 2023, a national coalition formed to advocate for a Canadian EOT framework. This cross-sector group of business leaders, tax specialists, and advisors sought a structure that met Canadian requirements and protected employee ownership for the long term.
That effort led to federal engagement and, ultimately, legislative action.
EOTs Become Law
Beginning January 1, 2024, the Employee Ownership Trust became a recognized succession structure in Canada. The federal government also introduced a temporary $10 million capital gains exemption for qualifying sales to an EOT (available from 2024 to 2026).
Canada became one of the only jurisdictions globally capable of implementing EOTs at national scale.
We Are Now in the Adoption Phase
The first Canadian EOT transitions are underway, with early adopters such as Grantbook, Brightspot Climate and Taproot moving through the process. Financial institutions, including banks, credit unions, and wealth firms, are beginning to build lending and underwriting models to support EOT transactions.
Businesses who are considering an EOT care deeply about their employees, their customers, and the community their business supports. They want a transition option that protects their legacy—not just the highest bidder. These owners are looking for a succession path that ensures continuity, rewards the people who helped build the company, and keeps the business rooted in its home community.
They’re often facing real pressures: an aging workforce, a competitive M&A environment, difficulty finding a suitable buyer, or a desire to exit gradually while maintaining stability. EOTs appeal to owners who want purpose, fairness, and sustainability to guide their transition—not just financial optimization.
What This Means for Owners Evaluating Succession
Employee ownership is no longer theoretical. It is regulated, active, and being implemented — but it is still unfamiliar to most bEmployee ownership is no longer theoretical. It is regulated, active, and being implemented — but it is still unfamiliar to most business owners. Understanding its origins helps clarify its purpose:
- It was designed to address succession challenges.
- It preserves locally owned companies.
- It provides an opportunity for all employees in the future to benefit from the financial success of the business.
The transition, however, requires planning across valuation, governance, leadership development, and employee engagement. Those elements take time — and with the capital gains incentive expiring after 2026, timing matters.
If You Are Curious Whether Employee Ownership Trusts Could Fit Your Business
We encourage you to speak with your trusted advisors and gather as much information as possible. It’s equally important to consult with an employee ownership expert who can help you evaluate Employee Ownership Trusts and other ownership models in a clear, informed way.
At Firefly Insights we help owners:
- evaluate employee ownership alongside other exit options
- understand the financial and governance mechanics
- assess readiness and leadership succession
- create a transition plan that fits their goals
Curious about what Employee Ownership solutions could be right for your business?
Book a call, we would be happy to help you see if there’s a fit.
