Two new pieces of legislation related to employee ownership were recently introduced in Illinois and Rhode Island, continuing the momentum of pro-ESOP legislation in state governments. Below is an overview of what both pieces of legislation would do:
Illinois: H.B. 4955 — Employee Ownership Development Act
One of the primary issues facing ESOPs is a lack of access to capital. Illinois HB 4955 addresses this by incentivizing and enhancing private investment in employee-owned companies.
The bill would create an “Employee Ownership Development Account” in the state. The Account would be funded by setting aside a portion of the State Treasurer’s investment portfolio into this dedicated account. From there, the Account would be used to invest in majority employee-owned companies seeking to locate, expand, or remain in the state.
Rather than making direct loans, the Account would invest by placing money with “employee ownership development firms.” These firms are defined in the bill as entities with a track record of identifying, evaluating, and investing in employee ownership transactions.
The bill also sets a clear expectation for how these firms deploy capital. Any fund created by an employee ownership development firm that receives money from the state under this program would be required to invest a minimum of 1.5 times the amount of investable capital it receives.
This bill could create an influx of capital to flow to both existing ESOPs looking to grow and businesses looking to transition to an ESOP
Rhode Island: H. 7570 — The Rhode Island Center for Employee Ownership (RICEO)
Rhode Island’s H. 7570 would create the Rhode Island Center for Employee Ownership (RICEO), housed within the Rhode Island Small Business Development Center.
The bill describes RICEO’s purpose as helping to secure resources and provide technical assistance, serving as a “concierge service” for legacy business owners and worker owners interested in transitioning a small business to an appropriate employee-owned business model.
The bill’s findings point to a core challenge driving the proposal: roughly 56% of small business owners in Rhode Island are age 55 or older, meaning many are at or approaching retirement age. Many states like Rhode Island are looking to promote ESOPs as a viable succession plan during this “silver tsunami” of retirements.
The legislation also recognizes that employee ownership can support business succession by keeping legacy small businesses open in Rhode Island while expanding opportunities for new owners. The bill further notes research suggesting employee ownership can help reduce employee turnover and may be associated with higher wages and better benefits compared to other ownership models.
Rhode Island: H. 7696 — Employee Ownership Tax Credit
Rhode Island’s H. 7696 would create a new Employee Ownership Tax Credit to help businesses cover up to 50% of the cost of transitioning to employee ownership. The bill sets a maximum credit of $100,000 for transitions to an ESOP.
The bill would also allow existing employee-owned businesses to claim a credit for expansion costs if they increase employee ownership by at least 20% of the company’s total ownership. To receive the credit, businesses would apply for certification through the state’s business development office, which could issue up to $1 million in total credits each year.
Rhode Island lawmakers modeled this bill on Colorado legislation already passed into law. If the bill passes, it would help reduce one of the biggest barriers to employee ownership transitions: the upfront cost of getting a transaction done.
The ESOP Association (TEA) will continue to monitor these bills and other pro-ESOP legislation across the country as the state legislative sessions move forward.
