Two ESOP Bills Would Promote Employee Ownership

Both, one in the House and one in the Senate, have bipartisan support

Two bills on employee stock ownership plans (ESOPs) have passed without dissent in the Small Business Committees in the House and the Senate, and both have bipartisan support.

By unanimous vote, the House Small Business Committee passed the Main Street Employee Ownership Act, sponsored by Nydia Velaquez (D-NY), with a friendly amendment from Steve Chabot (R-OH). Kirsten Gillibrand (D-NY) initially developed the concepts behind the bill.

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The bill is focused on increasing the role of the Small Business Administration (SBA) in facilitating ESOPs by allowing the SBA to make loans to companies that they can then reloan to ESOPs. It also allows ESOP loans to be made under the SBA’s preferred lender program and updates the definition of ESOPs so that they do not have to have full voting rights to qualify.

The bill makes an exception to an SBA rule that sellers of a company cannot have an ongoing role on the firm and waves the current SBA requirement of a 10% equity investment in a business transaction loan. It also allows financing to be used to cover transaction costs and makes it easier to loan to worker cooperatives. Finally, it requires the SBA to coordinate with investment funds licensed through the SBA’s Small Business Investment Company program and intermediary lenders through SBA’s Microloan program to promote employee ownership as an area to be considered for investment and lending.

In the Senate, the Small Business Employee Ownership Promotion Enhancement Act of 2017 was introduced by Gary Peters (D-MI) and James Risch (R-ID). The bill was passed by the Senate Committee on Small Business & Entrepreneurship. It directs the Service Core of Retired Executives (SCORE), an SBA outreach program, to promote employee ownership by appointing an individual to serve as the SCORE Employee Ownership Director. This individual will be responsible for “administering and disbursing materials that contain general information and technical assistance with respect to the establishment of employee ownership structures and coordinating efforts with respect to employee ownership with the chapters of SCORE located throughout the United States.”

The ESOP Association said it applauds the act. “We thank Senators Peters and Risch for their work on this bill and for continuing a long tradition of bipartisan support of ESOPs,” said ESOP Association President Michael Keeling, in a statement.

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