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Three More US States Move Forward with Pro-ESOP Initiatives

Following in the footsteps of states that already have passed pro-ESOP legislation—including Pennsylvania, Iowa, New Jersey, Virginia, and Nebraska—the states of Colorado, Texas, and Missouri are now moving forward with pro-ESOP initiatives.

Colorado House Passes Pro-ESOP Legislation

In April 2017, the Colorado state legislature passed a pro-employee ownership bill (HB17-1214). The bill creates a revolving-loan program to be operated by the Colorado Office of Economic Development and International Trade (OEDIT) and to be funded by gifts and donations. The bill, which now goes to Colorado Governor John Hickenlooper for signature, also requires that the OEDIT train its employees to be sufficiently knowledgeable about employee ownership to be able to recommend it when appropriate and to promote it in OEDIT materials. The bill was sponsored by Colorado State Representative James Coleman (D-Aurora) as well as Rep. Jack Tate (R-Centennial), who said of the bill, "Anything we can do to encourage ownership helping facilitate getting folks on the path of wealth creation, I think is a good thing."

Texas Bill Would Make ESOPs Eligible to Be Designated as Historically Underutilized Businesses

In March 2017, "An Act Relating to the State Designation of Employee Owned Corporations" (H.R. 4171) was introduced by Texas State Representative Ryan Guillen. The bill, if passed, would allow ESOP companies in Texas to be recognized as Historically Underutilized Businesses. The designation would add ESOP companies to other business categories that qualify for contracting preferences with the state. Read more about this initiative.

Missouri Legislature Passes Pro-ESOP Legislation

In September 2016, the Missouri state legislature passed legislation (H.B. 2030) that provides a tax deduction on qualifying sales to Missouri-based ESOPs. Missouri Chamber of Commerce CEO Daniel Mehan welcomed the passage of the bill, commenting in a press release that it will "help ensure employee-ownership is a viable alternative when business owners decide to sell. Having more owners selling to their employees will help keep Missouri businesses locally-held and growing in our state."

As we see increasing awareness of the benefits of employee ownership, we anticipate seeing more pro-ESOP bills being introduced throughout the country.

Copyright © 2020 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume VII, Number 170


About this Author

Brian Hector, Employment relations attorney, Morgan Lewis

Brian D. Hector counsels clients on Employee Retirement Income Security Act (ERISA) and employee benefits issues, including employee stock ownership plans (ESOPs), qualified benefits plans, executive compensation, fiduciary liability, and related securities matters. As head of Morgan Lewis’s ESOP Task Force, he advises public and private ESOP clients on corporate governance, succession planning strategies, ownership transition issues, and liquidity transactions. He also represents enterprises before the US Internal Revenue Service (IRS) and Department of Labor (DOL) in a...

Jason C. Ray, Morgan Lewis, employee benefits lawyer
Senior Attorney

Jason C. Ray advises employers on the design, implementation, and regulatory compliance of tax-qualified and nonqualified retirement plans. In addition to counseling clients on all aspects of employee benefits, Jason appears before the IRS and the US Department of Labor to review penalty assessments, plan correction, and plan audit, among other benefits matters. Jason guides clients in employee stock ownership plan (ESOP) transactions, including seller-financed and leveraged and nonleveraged buyouts as part of ownership succession transactions.