An Employee Stock Ownership Plans (ESOPs) become more popular in the U.S., employee ownership legislation is making its way through Congress to broaden the appeal of these unique benefit plans. Two bills, one in the House and one in the Senate, have recently made it through the Small Business Committees without dissent.
Nydia Velazquez (D-NY) is the House sponsor behind the Main Street Employee Ownership Act. With bipartisan support, H.R. 5236 would make it easier for ESOPs to obtain stock acquisition loans from the Small Business Administration (SBA). ESOP stock acquisition loans could also be made under the SBA's preferred lender program.
Loans would be made more readily available to worker co-ops, which generally have more limited access to investment capital. The bill would also establish a Small Business Employee Ownership and Co-operatives Promotion Program, partnering with Small Business Development Centers, to provide training and assistance for small businesses transitioning to employee ownership.
The legislation also makes plans for future cooperation and tracking of employee ownership. This includes:
- Developing recommendations on how federal programs can promote and support employee-owned businesses;
- Ensuring cooperation with federal agencies and national and local employee ownership, cooperative, and small business organizations; and
- Providing annual reports to Congress.
In the Senate, Gary Peters (D-MI) and James Risch (R-ID) introduced the Small Business Employee Ownership Promotion Enhancement Act of 2017. Senate Bill 1538 would “amend the Small Business Act to establish awareness of, and technical assistance for, the creation of employee stock ownership plans, and for other purposes.”
It appears one of the primary purposes of the Senate bill is to promote employee ownership in the business community. This includes directing an SBA program to appoint an individual to serve as the Service Core of Retired Executives (SCORE) Employee Ownership Director. This position would involve:
- Administering and distributing materials for establishing employee ownership structures;
- Coordinating efforts to promote employee ownership with SCORE chapters across the U.S.; and
- Providing technical assistance relating to business strategies to promote and facilitate employee ownership.
While some business owners are still unfamiliar with ESOPs and how they can benefit owners, employees, and the company, a broader range of industries are looking towards ESOPs. Employee ownership has been found to be a positive way to incentivize employees and provide a tax-advantaged exit strategy for owners getting ready to retire.
In addition to productivity increases, higher employee retention, and providing a ready buyer for a founder looking to retire or divest ownership of a portion of their company, there are significant tax savings associated with employee ownership plans. Employer contributions are generally tax-deductible for up to 25% of payroll. Selling shareholders may also be able to defer capital gains on the sale of company shares to an ESOP when sale proceeds are reinvested in qualified replacement property (QRP) within a year.
If you have any questions about employee ownership options for your company, the law firm of Butterfield Schechter LLP is here to help. We are San Diego County's largest law firm focusing its law practice on employee benefits law. Contact our office today with any questions on how we can help you and your business succeed.