Employee Ownership Blog
Corey Rosen

Corey Rosen

Senate Committee Recommends Funding WORK Act and Finalizing Valuation Regulations; House Does Not

The 2026 proposed appropriation for the Department of Labor (DOL) passed by the House Appropriations Committee lacks funding for state employee ownership offices authorized by the WORK Act that the Senate Appropriations Committee recommended in July. That committee is recommending an initial $2 million for 2025 to help fund state employee ownership outreach programs. The Senate committee also urged the DOL to finalize its ESOP valuation regulations.

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Corey Rosen

North Carolina Law Is First in U.S. Qualifying ESOPs for Historically Disadvantaged Contracting Preferences

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.

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Corey Rosen

SBA Simplifies Valuation Requirements for ESOP Transactions

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.

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Corey Rosen

North Carolina Bill Would Allow Certain ESOP Companies to Qualify for Contracting Preferences

A new bill in the North Carolina Senate would allow ESOP companies to qualify for state contracting preferences based on ownership by historically disadvantaged groups. Currently, ESOP-owned companies do not qualify for any contracting preferences in federal or state programs aimed at historically disadvantaged groups because the legal owner of the ESOP is a trust, not a qualifying individual or individuals.

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Corey Rosen

Colorado Employee Ownership Legislation Signed into Law

Governor Jared Polis of Colorado has signed HB24-1157, a bill that provides statutory authority for the Colorado Employee Ownership Office, which Governor Polis created in 2020 through an executive order. The office provides technical assistance, coordinates with other agencies, and conducts outreach. The bill would make the office permanent and expand prior tax credits for the costs of converting to or expanding an employee ownership plan. The law provides a refundable tax credit for up to $50,000 of the costs of setting up an employee ownership plan, defined as an ESOP, employee ownership trust, worker cooperative, or equity grants or rights given directly to at least 20% of a company’s workforce where those workers hold 20% or more of the company’s fully diluted securities. Conversions to other qualified forms of employee ownership now also qualify for a credit of up to 50% of the costs, up to a maximum credit of $25,000. The law also provides a tax credit of 50% of the costs, up to a maximum credit of $25,000, for a qualified employee-owned business expanding its employee ownership stake by at least 20%.

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Corey Rosen

Spate of Lawsuits Challenges ESOP Cash Investment Policy

In the last three months, four lawsuits have been filed against ESOP companies for imprudently investing their cash assets in low-yield investments. These are the first lawsuits ever filed on this topic. The suits are at ESOP companies Aluminum Precision Products, Pride Mobility Products Corp., Aerotech Inc., and Wilson Electric Services Corp. and all were filed by the same law firm, Engstrom Lee.

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