Employee Ownership and Section 8(a) Minority Business Qualification

We are often asked if ESOP-owned companies can qualify for minority ownership status for federal Section 8(a) contract preferences if the majority of their beneficial ownership (as reflected in accounts held in the trust, allocated or vested) goes to qualifying minority employees. While a strong intuitive case could be made for this, the regulations do not provide much help. The ESOP must own less than 50%, and the remaining owners must be qualifying individuals. In other words, the beneficial ownership of ESOP assets is treated essentially as if it were owned by disqualified individuals.