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B Corp ESOPs Combine Employee Ownership and Social Purpose

Posted by Marc S. Schechter | May 30, 2019 | 0 Comments

Esop

Employee-ownership and benefit corporations are becoming increasingly popular corporate structures that offer unique benefits to multiple stakeholders. In contrast to a standard corporation that primarily benefits shareholders, a benefit corporation balances profit and social purpose. Combining B Corps with employee ownership can be a natural marriage with a focus on worker ownership as a central value.

B Corps and Benefit Corporations in California  

B Corps and benefit corporations are related but not the same thing. A B Corp is certified by the B Lab based on verification and assessment, with a minimum score of 80 out of 200 points for certification. Certification is based on a number of requirements, including:

  • Social sustainability,
  • Governance,
  • Workers and community impact,
  • Environmental performance,
  • Accountability, and
  • Transparency.

Examples of Certified B Corporations include Ben & Jerry's, New Belgium Brewing, and Patagonia.

A benefit corporation is a new type of corporate entity, as opposed to the standard S corp or C corp. A number of states provide for benefit corporation organization, including California. A benefit corporation is a for-profit company that implements social and environmental impact in corporate decision making instead of just profit. Under a benefit corporation, directors can make decisions for the company that take into account social and environmental benefits.

California ESOPs and Worker Benefits   

Employee Stock Ownership Plans (ESOPs) are a type of retirement plan under ERISA that invests primarily in employer securities. Workers in an ESOP company get a financial interest in the company through retirement savings. When the employee retires, the company or the ESOP's trust buys back the stock from the employee.

While an ESOP does not explicitly state a social interest in employee wellbeing, the structure of an ESOP provides a number of benefits for workers that other workers may not have. Workers participating in an ESOP generally report higher job satisfaction, longer workforce retention, and higher rates of retirement savings.

There are a number of purely financial benefits for owners converting to employee-ownership but many owners also consider the altruistic benefits of being able to reward those employees who helped build the company to what it is.

Founders Interest in Maintaining Positive Impact After Retirement

One of the concerns for many small business owners is how a company will change after it is sold to private interests. A founder may have built the company on certain beliefs and understanding about the business's commitment to employees and the local community. On selling the company, the founder may no longer have control over what the company does. A new owner may lay off long-time employees, move the company to a different location, or withdraw strict environmental practices.

Utilizing an ESOP, the founder will be able to transition the company over to employee-ownership while maintaining some level of control over the company. This can encourage workers, the community, and other business partners that the new company will continue operating under the same standards of practice as under the original owner.

As a benefit corporation ESOP, the founder can also be confident that the future of the company will continue to take a holistic view of business success, in balancing profit with social impact, environmental concerns, worker well-being, and commitment to the community.

ESOPs and Benefit Corps for San Diego Businesses

If you have any questions about benefit corporations and ESOPs for your California company, Butterfield Schechter LLP is here to help. We are San Diego County's largest law firm with a focus on employee benefits law. Contact our office today with any questions on how we can help you and your business succeed.

About the Author

Marc S. Schechter

Marc Schechter specializes in the areas of employee benefits, ERISA, and business matters.

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