Senate Bill (SB) 1407, the California Employee Ownership Act, was signed into law by Governor Gavin Newsom on September 29, 2022. The bill will be codified as Government Code Section 12100.30 to 12100.33. Click here to read more about SB 1407.
The bill's text references CalOSBA several times. What exactly is CalOSBA? CalOSBA is the California Office of Small Business Advocate and is housed within the Governor's Office of Business and Economic Development (GO-Biz). According to CalOSBA's website, the agency exists to “support economic growth and innovation and ensure that ALL California small businesses and innovative startups have the information and direct support they need to better navigate resources, programs and regulations. CalOSBA serves as the voice of small businesses, representing their views and interests across the state and advocating for equitable access to capital, markets, and networks so that all California small businesses successfully start, manage, grow and become more resilient.”
According to author Leila Roberts, momentum is building for employee ownership. The California Employee Ownership Act “now rests in the hands of Tara Lynn Gray, director of the California Office of the Small Business Advocate (CalOSBA). She is charged with figuring out how to make sure the whole state now actively supports employee-owned enterprises.”
Employee ownership has many forms. Profit-sharing plans exist as a way for employees to benefit from the company's profits during their employment with the company. The most common in the U.S. is the employee stock ownership plan (ESOP). There are many benefits of employee ownership. Did you know that private and family business owners can use an ESOP as a compelling and tax-friendly alternative for selling their business at fair value while enabling it to remain independent? Did you also know that ESOPs possess the ability to create retirement wealth for employees while simultaneously creating a buyer for the owner of the business, support senior leadership recruiting and enable the owners to remain involved in the business, if they so choose? One of the benefits of an ESOP is that it incentivizes employees by giving them an interest in the long-term success of the business; in fact, with their higher employee productivity and revenue, ESOP companies are found to consistently out-perform their non-ESOP competitors. Owners and founders invested in the continued success of the company can still maintain a majority interest and control of the company to ensure the company continues the traditions of quality, while rewarding the employees who helped build the company. ESOPs provide a transition process from private ownership to employee ownership, based on the owner's terms and timeline.
As noted in Senator Josh Becker's Legislative Counsel's Digest, “[e]xisting law establishes the Office of Small Business Advocate (CalOSBA) within the Governor's Office of Business and Economic Development, also known as GO-Biz, to advocate for causes of small business and to provide small businesses with the information they need to survive in the marketplace. This bill would, upon appropriation by the Legislature, establish the California Employee Ownership Hub within the Office of Small Business Advocate to increase awareness and understanding of employee ownership among stakeholders, assist business owners and employees in navigating available resources, and streamline and reduce barriers to employee ownership. The bill would require an Employee Ownership Hub Manager to administer the hub, and would authorize the manager to be responsible for prescribed duties, including partnering with specified state agencies and private entities to promote employee ownership transitions.”
The California employee ownership community, including the Worker Owned Recovery California Coalition (“WORC”), who has started a petition to ask the state to fund the Employee Ownership Hub, eagerly awaits CalOSBA's next steps. More information on WORC's petition may be found here. Contact CalOBSA to voice your support for the California Employee Ownership Act and the advancement of employee-owned businesses in California!
Butterfield Schechter LLP is California's premier law firm with a focus on assisting businesses transition to employee-owned. Contact one of our highly experienced attorneys today to see if transitioning to employee-owned is a good fit for your business.