Employee Ownership around the world: How Canada is committed to it’s growth
Canada's Employee Ownership Trust (EOT) legislation has become one of the most significant developments in international employee ownership. After introducing the model in 2024 on a trial basis, the Canadian Government confirmed on 18 June 2026 that the legislation would become permanent, providing business owners with a succession option that preserves independent businesses while giving employees a meaningful ownership stake.
So in this second instalment in our Employee Ownership Around the World series, now is a great time to look at Canada, exploring how its Employee Ownership Trust model works, why it was introduced, and how it compares with the UK's established EOT.
Employee ownership is natural and universal.
We’re justifiably proud in the UK of our long standing history of government incentives to encourage more employee ownership. Starting all the way back in 1978 with the profit sharing scheme (a way for all of a company’s employees to be given shares tax free), we now have the UK employee ownership trust (EOT) introduced in 2014 which to date has enabled over 2,800 companies to become wholly or majority employee-owned, with numbers continuing to grow. There have been other notable milestones along the way, such as the share incentive plan (SIP).
But it’s important to step back to see that we are part of a bigger picture and a growing worldwide trend. An increasing number of countries, seeing the bright future that employee ownership can offer for both business success and shared prosperity, are finding their own ways to encourage more businesses to adopt this model.
So let’s take a look at what they are doing in Canada.
Why is the Canadian government encouraging employee ownership?
Like many developed economies, Canada faces a significant wave of business owner retirements over the coming decade. Many profitable privately owned businesses struggle to find suitable successors, often resulting in sales to competitors, private equity or overseas buyers.
Employee Ownership Trusts provide an alternative succession route by allowing employees to take over the ownership while enabling founders to realise value from their businesses.
According to Employee Ownership Canada, the purpose of the country’s employee ownership law is "to make it easier for employees to become collective business owners, preserving local jobs, keeping wealth in communities, and enabling retiring owners to sell to employees instead of third-party buyers."
How does the Canadian Employee Ownership Trust (EOT) work? The key features explained…
The Canada model will likely look familiar to any student of the UK employee ownership trust, although it’s important to say that Canada’s design is very much its own, it should not be regarded as a clone of anyone else’s.
Company owners who sell to an EOT are exempt from capital gains tax on their first 10 million Canadian dollars (c. £5 million, £ US 7 million, Euros 6.2 million).
These are the main conditions:
- The Canadian EOT must be a Canada-resident trust which operates for the benefit of all the company’s employees (former employees can also be included), with any allocations of benefit determined only by reference to hours worked, remuneration, length of service (or a combination)
- A person holding more than 10% of the company may not be a beneficiary
- At least 75% of employees must be Canada-resident
- At least one third of trustees must be employees
- The EOT must acquire more than 51% of the company
- The company must be actively trading
The capital gains tax exemption is also conditional on there being no subsequent disqualifying event (the trust no longer qualifies as an EOT or the company ceases to actively trade). If a disqualifying event happens within two years of sale to the EOT, the capital gains tax exemption is withdrawn. If it happens after two years, the EOT inherits the original shareholders’ tax liability.
Canadian vs UK Employee Ownership Trusts: What's the difference?
There are many similarities but some key differences:
- Canada provides a full exemption from CGT (up to $10 million gains) whereas the UK no longer does, instead reducing the CGT rate by 50% but with no financial limit
- The Canadian clawback period for disqualifying events is starkly shorter (two years rather than four full tax years)
- There is no ability for employees of a Canadian company owned by an EOT to receive an income tax free bonus
- Owners of professional businesses (for example, doctors, lawyers, accountants and vets) are not eligible for the tax relief
Canada's EOT: An excellent new model and looking ahead
Canada is now a pivotal part of a growing international movement recognising employee ownership as an effective solution to business succession, improved business performance, employee engagement and long-term economic resilience. Making the legislation permanent sends a strong signal that Employee Ownership Trusts are intended to become a lasting part of Canada's business landscape. We look forward to tracking its progress and perhaps seeing elements of this model influence future developments in the UK (for example the two year Canada clawback period, which seems a more appropriate period in my opinion).
Employee Ownership Canada Conference 2026
Employee Ownership Canada will be holding its annual conference in Vancouver this October.
I’m looking forward to attending myself, when I hope to exchange ideas and experiences with business owners, advisers and employee ownership specialists, share lessons from the UK's employee ownership journey, and learn more about the future of Employee Ownership Trusts (EOTs) in Canada.
Further reading
Here is an example of one now employee-owned Canadian company.
You can find out some more about how the Canadian EOT works here:
https://eot.employee-ownership.ca/
Thinking about employee ownership as a succession route?
If you are considering employee ownership for your business, whether through an Employee Ownership Trust (EOT), a hybrid structure, or an alternative succession route, our team would be happy to help you explore your options.
Get in touch with us to discuss how employee ownership could work for your business.
About the Author
Robert Postlethwaite is the founder of Postlethwaite Solicitors and a leading UK adviser on employee ownership. Over the last twenty years he has helped structure hundreds of business transitions to employee ownership, and has particular expertise in Employee Ownership Trust (EOT) transactions and succession planning for privately owned businesses.
Robert writes and speaks regularly on employee ownership, business succession, and the legal frameworks that support long-term business sustainability across the UK and internationally.