Corey Rosen
Governor Roy Cooper of North Carolina has declared October as employee ownership month. Among other things, Cooper said that “employee ownership drives the creation of wealth and helps to close the wealth gap for North Carolinians, as employee owners are shown to have more than twice the retirement savings as their peers and greater financial assets overall.”
Corey Rosen
In a recent policy statement, the Harris/Walz campaign became the first presidential campaign to explicitly endorse employee ownership: "In addition, Vice President Harris and Governor Walz will reform our tax laws to make it easier for businesses to let workers share in their company’s success, including through broad-based employee stock ownership, profit-sharing plans, and comparable arrangements, with appropriate guardrails to ensure these plans benefit and protect workers."
Corey Rosen
In 2014, the United Kingdom passed a law providing a tax exemption for business owners selling to an employee ownership trust (EOT). An EOT is somewhat similar to a U.S. ESOP, but unlike an ESOP, with an EOT the employees do not have individual share accounts and do not have any claim on equity when they leave the company. Instead, the trust is meant to own the company in perpetuity on behalf of the employees, with the employees getting a dividend or profit share each year. New data confirm just how successful this tax incentive has been in encouraging transfers to EOTs in the UK. According to the European Federation of Employed Shareholders, 1,756 UK companies have been transferred to their 124,000 employees via EOTs as of July 2024. About 6% of UK business transfers so far in 2024 have been through EOTs, as the graph below shows.
Corey Rosen
Each year the NCEO compiles a review of ESOP litigation over the prior 12 months. The review has been incorporated into our book ESOP and 401(k) Plan Employer Stock Litigation Review 1990-2024.
Corey Rosen
A new report by Curt Lyon and Julie Menter of Transform Finance, Employee Ownership: Overview for Mission-Oriented Investors, identifies 53 funds in the U.S. and Canada that invest partly or entirely in employee-owned companies. Twenty-two of these funds focus only on employee ownership and target raising $1.6 billion to invest. The other funds, which target raising $3.8 billion, invest only some of their assets in employee ownership companies. Five funds focus just on ESOPs, while the others focus on non-ESOP equity sharing.
Corey Rosen
The appropriation bill passed by the House lacks funding for state employee ownership offices authorized by the WORK Act, but the Senate Appropriations Committee is recommending an initial $2 million for 2025 to help fund them. The committee also urged the Department of Labor (DOL) to finalize its ESOP valuation regulations.
Corey Rosen
The comment period for a proposed Department of Defense (DOD) rule allowing 100% ESOP-owned companies to receive sole source follow-on contracts ends on July 29.
Corey Rosen
The North Carolina legislature has passed and the governor has signed S. 802 (PDF), an infrastructure finance bill that also includes an unrelated provision allowing ESOPs in which at least 51% of the participants are “minority persons or socially and economically disadvantaged individuals” to qualify for the state’s historically underutilized business set-aside program. The law states that “an ESOP company applying for certification as a historically underutilized business shall provide an attestation that it meets the requirements of this subdivision together with such documentation supporting the attestation as may be required by the Secretary." The law became effective on July 1, 2024.
Corey Rosen
When it became law in 2018, the Main Street Employee Ownership Act was widely seen as a boost to employee ownership by facilitating SBA financing, but so far, it has had only a minor impact, supporting the financing for fewer than a dozen ESOP transactions. The U.S. Small Business Administration (SBA) has issued procedural guidance (SBA Procedural Notice control no. 5000-858322, June 24, 2024) providing that a valuation done for an ESOP trustee to obtain a fair market value for shares purchased by the ESOP in a leveraged transaction using an SBA loan guarantee under the Main Street Employee Ownership Act of 2018 will satisfy the SBA's requirement for a valuation of the stock. Before this guidance was issued, SBA officers could and often did ask for a separate valuation to be performed following SBA standards. That meant companies would have two different valuations and correspondingly greater costs, and the transaction would take more time. There could also be fiduciary issues if the SBA valuation came in below the valuation for the trustee, while if the valuation came in higher, sellers might be less willing to do the deal.
