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Will California Follow Colorado Governor's Action in Expanding Employee Ownership?

Posted by Marc S. Schechter | Jul 01, 2019

In April, Colorado's governor Jared Polis signed an executive order to focus on expanding employee ownership in Colorado businesses. With more legislative activity to provide incentives and support for employee-ownership, including Employee Stock Ownership Plans (ESOPs), California's politicians could take similar action to encourage ESOPs.  

Colorado Executive Order

The executive order signed by the Colorado governor established the Commission on Employee Ownership. According to the order, the mission of the new commission is “to support the development and advancement of employee-owned businesses by:

  1. Establishing a robust and wide-reaching network of technical support for businesses wishing to convert to employee ownership;
  2. Educating businesses and communities across the State on the economic and community benefits of employee-owned businesses; and
  3. Identifying barriers to the development and advancement of employee-owned businesses and recommending State actions and resources to remove such barriers.”

Reasons for Increasing Interest in Employee Ownership

The action acknowledges the many unique aspects of employee-owned businesses compared to traditional companies, including:

Employee Ownership Benefits for Specialty Food Companies

Many industries can benefit from employee-ownership, including specialty grocery stores, food companies, and breweries. In Colorado, John Levers, who runs the Save-A-Lot grocery store company as an employee-owned business, said, “employee ownership is the best wealth generation vehicle that I know of. In addition to increasing retention and productivity, it gives employee-owners a true stake in the success of the company and control over their own financial security in the future.”

California Legislation in Support of ESOPs

In February, a California State Senator introduced a bill to provide incentives for businesses to establish ESOPs. Senator Scott Wilk's bill SB-553 would provide a 3% bid preference to qualified ESOP-owned business bidders in state contracts for public works projects.

According to the bill's author, nearly 60% of private sector employees in California work for an employer that does not offer a retirement plan. Providing incentives for businesses, such as a bid preference in state project contracts, could give employee-owners a more secure retirement and a corporate ownership opportunity.  

On April 9, 2019, the bill failed to pass committee but was granted reconsideration. Other states, including Colorado, Missouri, and Iowa, have introduced legislation that would support ESOP-friendly policies but California has not taken any recent action in providing incentives for companies to adopt ESOPs.  

Federal Legislation to Incentivize Employee Ownership  

A bipartisan bill (SB 177) was introduced in the U.S. Senate, which would “eliminate barriers that businesses and their owners currently face in establishing a new S corporation ESOP or expanding the employee-ownership stake in an S Corporation.”

The bill was referred to the Committee on Finance. However, like the previous version of the bill that was introduced in 2017, there is no sign of pending action on the bill.

ESOP Law Firm for San Diego Businesses

Legislative action could increase employee-ownership in San Diego but many companies are already benefiting from the tax savings, succession planning options, and employee retirement savings by moving to an ESOP. If you have any questions about employee ownership 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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