CA: Unlock the Power of Employee Ownershipfor Your Small Business
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Employee Ownership Hub | California Office of the Small Business Advocate (CalOSBA) Unlock the Power of Employee Ownership for Your Small Business The California Employee Ownership Act, authored by Senator Becker and approved by Governor Newsom in 2022, aims to reduce the barriers for businesses seeking to transition to employee ownership and worker-led models, such as employee stock ownership plans and worker cooperatives. The California Office of the Small Business Advocate (CalOSBA) is partnering with Project Equity to provide information about employee ownership options and to support small businesses achieve successful transitions to employee ownership. What is Employee Ownership? Employee ownership is a highly flexible business model in which employees are offered an equity stake in the company making them co-owners. This proven strategy can reduce the risk of going it alone, both financially and through increased employee engagement. It is a game-changer for small business owners looking to: Plan your succession : Transition partial or full ownership to employees while preserving your legacy Boost revenue and efficiency : Engaged employee-owners drive business growth and streamline operations Access capital and liquidity : Gain flexibility to invest in your future while rewarding your team Recruit, retain and reward talent : Attract and keep top-tier staff with ownership incentives Types of Employee Ownership There are three main types of employee ownership, all of which have been around for many decades: Employee Stock Ownership Plans (ESOPs), worker cooperatives and Employee Ownership Trusts (EOTs). Each employee ownership model has key characteristics. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) WORKER-OWNED COOPERATIVE EMPLOYEE OWNERSHIP TRUST (EOT) SUITABLE COMPANY SIZE 40+ employees, $750K+ EBITDA Any size Any size TAX BENEFITS TO SELLING OWNER Can opt for §1042 deferral of gains Can opt for §1042 deferral of gains No TAX BENEFITS TO EO BUSINESS S Corp tax avoidance Tax deduction for patronage Tax deduction for profit-sharing SETUP AND ONGOING COSTS High Low Low FLEXIBILITY OF MODEL Within ESOP parameters Within coop parameters Highly flexible EMPLOYEES BUY THEIR SHARES No ✔ No EMPLOYEE ROLE IN STRATEGIC DECISION-MAKING Optional ✔ Optional PARTIAL EO TRANSITION ✔ ✔ ✔ PROFIT-SHARING BUILT IN No ✔ ✔ Learn more Learn more Learn more Case Study: The Watershed Nursery empowers workers through cooperative transition Working with California Office of the Small Business Advocate (CalOSBA) partner Project Equity, the Watershed Nursery transitioned into a cooperative with a collaborative management structure ensuring that all workers, regardless of the language they speak, were actively engaged in the process. Click here to read the case study. Hear from a Business Just Like Yours Listen to the stories of DELTA Pipeline (ESOP), Happy Earth Cleaning (worker-owned cooperative), and Local Ocean Seafoods (EOT) three businesses that were transforme