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.

Under current North Carolina law, an "historically underutilized business" is one where at least 51% of the company's stock is owned by members of at “least one of the following groups: Black, Hispanic, Asian-American, American Indian, female, disabled, or disadvantaged.”

Section 6 of the bill provides that for an ESOP company to qualify for certification as a historically underutilized business, at least 51% of the company's plan participants must be members of at least one of the aforementioned groups (note that the 51% in this case refers to the percentage of participants, not the percentage of stock). It also requires any ESOP company seeking to be certified as a historically underutilized business to submit an attestation that it meets the requirements for certification, together with any supporting documentation as may be required by the secretary of state. The proposal is part of a larger bill dealing with an unrelated economic development issue. The bipartisan bill has passed the first two committees that have to approve it; the Finance Committee will act next.