Employee Ownership Explainer
A guide for BC construction business owners exploring succession options
What is Employee Ownership?
Employee ownership is a business structure where employees own—in part or whole—the company they work in. It transforms workers from wage earners into business partners with a real stake in the company's success.
For construction business owners: Employee ownership offers a succession planning option that keeps your company's legacy intact while rewarding the team that helped build it.
Key Features
- Employees gain ownership stake without always needing upfront capital
- Business continuity is preserved through internal succession
- Company culture and values remain intact
- Local ownership keeps jobs and profits in the community
Why Employee Ownership?
Research shows employee-owned firms deliver significant benefits for workers, businesses, and communities:
For Your Business
- Strong firm productivity and performance
- Greater resilience during economic downturns
- Lower employee turnover and higher engagement
- Preservation of company culture and values
For Your Employees
- Higher compensation and wealth building opportunities
- Greater job security and satisfaction
- Meaningful participation in business decisions
- Direct benefit from company success
For Your Community
- Reduced income inequality
- Jobs and capital remain locally anchored
- Stronger, more resilient local economy
- Business continuity for established firms
Why It Matters in Construction
The construction industry is built on skilled teams, trust, and local relationships. Employee ownership aligns perfectly with these values while addressing unique industry challenges.
The "Silver Tsunami": Over 75% of Canadian small business owners plan to exit their business within 10 years, representing over $2 trillion in assets. In construction, this succession crisis threatens established firms and skilled jobs.
Benefits for Construction Firms
- Succession without selling to competitors: Keep your company independent rather than being absorbed by larger firms or private equity
- Retain skilled crews: Ownership opportunities help attract and keep experienced tradespeople in a competitive labour market
- Improve project buy-in: When crews have ownership stakes, quality and efficiency naturally improve
- Build on existing teamwork: Construction's collaborative culture makes the transition to shared ownership more natural
- Keep profits local: Support the communities where your projects are built
Real Impact
Employee-owned construction firms report higher safety compliance, better project completion rates, and stronger client relationships—all driven by the "owner mindset" that comes with real equity participation.
Employee Ownership Models in Canada
Choose the model that best fits your business goals and employee needs:
Employee Ownership Trust (EOT)
New to Canada as of 2024, EOTs allow a trust to acquire your firm on behalf of employees without workers paying out of pocket.
How it works:
- Trust acquires at least 51% of company shares
- You receive deferred payments from future profits over 5-15 years
- Employees become beneficiaries without upfront investment
- At least 1/3 of trustees must be employee beneficiaries
- Day-to-day management can remain unchanged
Benefits:
- No capital required from employees
- Preserves company culture and legacy
- Gradual transition allows knowledge transfer
- Owner can remain as CEO if desired
- Keeps ownership local and in Canadian hands
Tax Considerations:
- Capital gains exemption: First $10 million exempt from tax (2024-2026)
- Tax savings: Approximately $3.5 million on the full exemption
- Deferred gains: Remaining capital gains can be spread over 10 years (10% minimum per year)
- Trust must be Canadian resident with Canadian management
- Seller must maintain arm's length relationship post-sale
Good fit for:
Construction companies where the owner wants to retire gradually, preserve company culture, and reward loyal employees without requiring them to raise capital.
Employee Share Ownership Plan (ESOP)
Allows employees to purchase shares directly from the company, often with tax advantages.
How it works:
- Employees purchase shares at predetermined intervals
- Company sets eligibility criteria and ownership limits
- Share value calculated transparently
- Can be structured with various vesting schedules
Benefits:
- Flexible ownership percentages
- Can start small and grow over time
- Retains key employees
- Aligns employee and company interests
Tax Considerations:
- Potential personal tax credits for eligible employees in BC
- Company can deduct certain ESOP contributions
- Capital gains treatment on share appreciation
- Must comply with CRA valuation requirements
Good fit for:
Companies wanting to reward and retain key employees, or those planning a gradual transition where employees can afford to invest.
Worker Cooperative
A democratically controlled business where workers are member-owners with equal voting rights.
How it works:
- One member, one vote principle
- Members purchase shares to join
- Profits shared based on patronage, not capital
- Democratic governance structure
Benefits:
- Strong democratic culture
- Equal ownership and control
- Proven resilience in downturns
- Access to cooperative support networks
Tax Considerations:
- Currently no specific tax incentives like EOTs
- Patronage dividends: Profits distributed to members based on their use of the co-op (e.g., hours worked) are tax-deductible to the co-op
- Patronage allocations: Members receive these profit distributions and must report them as income on their personal taxes
- Advocacy ongoing for equal tax treatment with EOTs
Good fit for:
Smaller construction firms with strong team culture, or businesses whose owners value democratic principles and community benefit.
Virtual Ownership (Phantom Shares)
Provides economic benefits of ownership without actual equity transfer.
How it works:
- Employees receive units that track company value
- Cash bonuses paid based on company performance
- No actual shares change hands
- Simpler than equity-based plans
Benefits:
- No dilution of current ownership
- Flexible and easy to implement
- No complex valuations required
- Can be tailored to specific goals
Tax Considerations:
- Payments treated as employment income
- Company can deduct payments as compensation
- No capital gains treatment
- Simpler tax compliance
Good fit for:
Companies wanting to share profits and create ownership culture without the complexity of actual equity transfers, or as a stepping stone to full employee ownership.
Resources
Key Canadian Organizations
- Employee Ownership Canada: National advocacy and resources for EOTs
- Canadian Worker Co-operative Federation: Support for worker co-ops across Canada
- ESOP Association Canada: Education and networking for ESOPs
- Social Capital Partners: Research and policy advocacy for employee ownership
- BC Co-operative Association: Provincial support and resources
- Canadian Employee Ownership Coalition: Advocacy for EOT legislation
Financing Partners
- BMO Commercial Bank: EOT financing options
- Scotiabank (Roynat): Employee ownership lending
- Meridian Credit Union: EOT transaction support
- Vancity Credit Union: Co-op and social enterprise financing
- Canadian Co-operative Investment Fund: Debt and equity for co-ops
Note: This Employee Ownership Explainer is part of a comprehensive Digital Employee Ownership Toolkit. Other tools in the toolkit cover valuation, financing calculations, management assessment, transition planning, and best practices for sustaining employee ownership.
