EMPLOYEE-OWNED
EMPLOYEE-OWNERSHIP
EMPLOYEE OWNERSHIP (EO)




EMPLOYEE-OWNERSHIP

HOW DOES AN EMPLOYEE-OWNED COMPANY WORK?

EMPLOYEE-OWNERSHIP LINKS



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SECTION 1



WHAT IS
EMPLOYEE
OWNERSHIP?




Employee owned businesses are totally or significantly owned by their employees.

Employee owned businesses achieve higher productivity and greater levels of
innovation and are more resilient to economic turbulence. They also have more
engaged, more fulfilled and less stressed workforces.



Employee ownership can take one of three forms:

Direct employee ownership – using one or more tax advantaged share plans, employees
become registered individual shareholders of a majority of the shares in their company;

Indirect employee ownership – shares are held collectively on behalf of employees,
normally through an employee trust;

Combined direct and indirect ownership – a combination of individual and collective
share ownership.



Employee ownership typically happens
in one of the following scenarios:


Business succession or ownership succession – private owners, such as an entrepreneur
or family business, decide to sell to their workforce. The most typical route into
employee ownership.



Growth and Expansion

Partners, owners, or managers might decide to broaden ownership to cover most or all
employees, reflecting the need to attract, retain and motivate talented people.



Public Service Spin-Outs

Sometimes called mutuals, these newly created businesses including social enterprises
and community interest companies delivering public services may choose an employee led
or owned solution as part of their structure.

Start Ups – as in the case of John Lewis, Arup Group or Scott Bader, the founder of a
business opts for employee ownership at the outset of the business or later.

Insolvency or closure threat – employee buy–outs can prove an effective route to recovery
for businesses that might otherwise fail.



What is Employee Ownership?
https://employeeownership.co.uk/what-is-employee-ownership/



Employee
Ownership
Foundation

http://employeeownershipfoundation.org/




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SECTION 2



HOW DOES AN
EMPLOYEE-OWNED
COMPANY WORK?




An employee-owned company plan is more commonly referred to as an “employee
stock ownership plan,” (or ESOP), but the name conveys the right message: In
an ESOP, the employees are given stock in the company as part of compensation
for working at the company, making those employees shareholders in the company.
Although this type of plan can have benefits for the employees, it’s also
often advantageous to the company itself when it comes to taxes. Examples of
well-known ESOP companies include Penmac, which is 100 percent employee-owned,
as well as Publix Super Markets and WinCo Foods, both of which are more than 50
percent employee-owned, according to the National Center for Employee Ownership.



Reasons for ESOP Companies

NCEO estimates that, as of 2018, there are approximately 7,000 employee stock
ownership plans that cover more than 14 million workers. Another estimated 9
million employees participate in profit-sharing and stock bonus plans that
invest a significant amount in company stock.

According to NCEO, there are three main reasons for a company to be employee-owned.
It could be because the original owner of a privately held company is leaving, so
the organization buys those shares with tax-deductible contributions to the plan.
An ESOP can also borrow money to buy shares of existing owners, after which it makes
a tax-deductible contribution to the plan to repay the loan. Finally, a company might
offer an ESOP solely to provide an additional benefit for its employees.



How ESOP Companies Work

When a company wants to become employee-owned, it sets up a trust to which it
makes yearly contributions, which are then given to individual employee accounts
within that trust. The way a company allocates contributions to employees varies
among organizations. Some allocate stock in proportion to compensation, while
others give it based on years of service.

An employee must become vested in an ESOP plan before he can see any benefits from
the program, which means that he qualifies to receive an increasing percentage of
his individual accounts throughout the years that he works at the company. Vesting
plans may be either a Three-Year Cliff,ť which means that an employee is 100
percent vested after three years but not at all before that time, or “Six-Year
Graded,ť in which the vested percentage for an employee goes up by 20 percent
between two and six years of service.

When an employee leaves the company, the stock she owns is sold, and she receives
the profits, depending on how much she had vested in the plan.



Benefits of an ESOP

There are a number of tax benefits for an employee-owned company.

For example, contributions of stocks to the plan are tax-deductible, as are cash contributions.
Additionally, contributions to the ESOP that are used to repay a loan that the plan took out
are tax-deductible. Sellers in an employee-owned company that are C corporations receive a tax
deferral when reinvesting proceeds of the sale in other securities, as long as the ESOP owns 30
percent of the company’s shares.

For S corporations, the percentage of ownership held by the ESOP does not pay federal income tax
and often doesn’t pay state income tax either. For example, if an ESOP owns 50 percent of the
shares, there’s no tax on 50 percent of the profits. Finally, dividends that are passed through
employees, reinvested by workers in employee stock or are used to pay an ESOP loan – all are
tax-deductible.

For employees, there’s a benefit that employees don’t pay tax on contributions to the ESOP,
only on distribution of the account after leaving the company. However, an employee can roll over
that distribution to another retirement plan, such as an IRA.



Employee-owned companies
https://www.certifiedeo.com/eo/about



Employee
Stock
Ownership

https://en.wikipedia.org/wiki/Employee_stock_ownership




The Employee Ownership 100:
America's Largest Majority
Employee-Owned Companies

https://www.nceo.org/articles/employee-ownership-100




National Center
For Employee Ownership
NCEO

https://www.nceo.org/




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SECTION 3



EMPLOYEE-OWNED
EMPLOYEE-OWNERSHIP
LINKS




5 ways to help your employees take ownership of their work
https://soapboxhq.com/blog/employee-motivation/help-employees-take-ownership-work

Employee Ownership: ESOP Pros and Cons
https://online.grace.edu/news/business/employee-ownership-esop-pros-and-cons/

Employee Stock Ownership Plan (ESOP)
https://www.investopedia.com/terms/e/esop.asp

Employee Stock Ownership Plans: The Pros and Cons
https://www.di.net/articles/employee-stock-ownership-plans-the-pros-and-cons/

How to Build an Employee-Owned Business
https://www.entrepreneur.com/article/241522

How Employee Ownership Benefits Executives, Companies, and Employees
https://www.amanet.org/articles/how-employee-ownership-benefits-executives-companies-and-employees/

How an Employee Stock Ownership Plan (ESOP) Works
https://www.nceo.org/articles/esop-employee-stock-ownership-plan



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Small Business Encyclopedia
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