Employee ownership is gaining momentum worldwide, with businesses increasingly recognizing the benefits of giving employees a stake in the companies they work for. Employee Stock Ownership Plans (ESOPs) and similar models enhance productivity, job satisfaction, and business resilience. While the United States has long been a leader in ESOPs, the concept is expanding rapidly across Europe, with the United Kingdom emerging as a key player in this movement.

The UK’s Growing Commitment to Employee Ownership

The UK has experienced a surge in employee-owned businesses, driven by supportive government policies and a growing awareness of the model’s advantages. According to the Employee Ownership Association (EOA), the number of employee-owned businesses in the UK has more than doubled since 2020, now exceeding 1,400 companies.

A key factor behind this growth is the Employee Ownership Trust (EOT), introduced in 2014, which allows business owners to sell a controlling stake to employees with significant tax benefits. Business owners selling to an EOT can qualify for capital gains tax (CGT) relief, meaning they pay no tax on the sale. Additionally, employees in EOT-owned businesses can receive annual bonuses of up to £3,600 tax-free. This has made EOTs an attractive succession strategy, particularly for family businesses and professional services firms.

Several high-profile UK businesses have transitioned to employee ownership, including:

  • John Lewis Partnership – One of the UK’s most well-known employee-owned businesses, operating department stores and supermarkets.
  • Riverford Organic Farmers – A leading organic food delivery service that transitioned to employee ownership in 2018.
  • Make Architects – A prominent architecture firm with an employee-owned structure since its founding.
  • Richmond & Towers – A communications and PR agency that became employee-owned in 2019.

Employee Ownership Trusts in Canada

In Canada, employee ownership is still in the early stages but is gaining traction as a viable business model. The concept of Employee Ownership Trusts (EOTs) is particularly relevant in the Canadian context, as it allows business owners to transfer ownership to their employees while ensuring the company’s sustainability. EOTs are becoming an attractive option for business succession planning, especially for family-owned businesses.

Provinces like British Columbia and Nova Scotia have already implemented policies to support employee ownership.  At the federal level, bills C-59 and C-69 were recently passed in Canada making Employee Ownership Trusts (EOTs) an official part of the tax system. This means that when a business owner sells their company to their employees through an EOT, they can get up to $10 million in tax-free capital gains.

The goal is to encourage more businesses to transition to employee ownership, which could give workers a stake in the company’s success and help spread wealth more fairly. However, this tax incentive is only available until the end of 2026, so there’s a push to raise awareness and show that businesses are interested in using it.

Though still emerging, there is growing awareness of the benefits of employee ownership in Canada, and the government is exploring ways to foster a more inclusive economy by supporting employee ownership as a model for business succession.

ESOP Tax Incentives in Various Countries

Many countries have implemented tax incentives to encourage employee ownership. Some key examples include:

  • United States: Companies with ESOPs enjoy tax deductions on contributions to employee ownership plans. S-corporation ESOPs can even be exempt from federal income  tax. The higher the percentage of the company owned by the ESOP, the higher the tax advantages.
  • France: Employee shareholding is supported through profit-sharing schemes and tax advantages for employee savings plans. Businesses benefit from reduced corporate tax rates if they promote employee ownership.
  • Spain: Worker cooperatives and Sociedades Laborales (SALs) receive favorable tax treatment, including lower corporate tax rates.
  • Canada: While ESOPs are still developing, bills were recently passed in Canada making Employee Ownership Trusts (EOTs) an official part of the tax system.
  • Australia: The government has reformed ESOP tax rules, including capital gains tax deferral for employee shareholders and concessions for small businesses transitioning to employee ownership.

The Future of Employee Ownership

As economic uncertainty and worker expectations evolve, employee ownership is likely to continue expanding. Governments worldwide are recognizing that giving employees a stake in business success leads to more stable economies and engaged workforces. The UK’s rapid embrace of employee ownership suggests that other nations, including Canada, may continue to follow suit, making it a cornerstone of modern business strategy.

 

John Hoffmire is a Research Associate at the Oxford Centre for Mutual and Co-owned Business