The Main Street Employee Ownership Act’s Effect on Small Businesses

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The Main Street Employee Ownership Act of 2018 (MSEOA) was signed into law on August 13, 2018, as part of the John S. McCain National Defense Authorization Act for Fiscal Year 2019. The MSEOA has garnered widespread bipartisan support in Congress over the past year and is expected to enable small businesses to pursue options for employee ownership. This piece of legislation is the most significant change to laws affecting employee stock ownership plans (ESOP) since the late ’90s.

The MSEOA amends the Small Business Act and gives authority to the Small Business Administration (SBA) to guarantee loans for qualified employee trusts of a small business to purchase the stock of that business. SBA 7(a) Loan Program enables banks to issue loans for up to $5 million, of which the government insures 85 percent of the loan. This guaranteed loan also will include transaction costs associated with purchasing the stock. The loan to a small business will be guaranteed under two conditions: (1) The loan proceeds will be used to purchase the small business’s stock to form a qualified employee trust, and (2) the trust must own at least 51 percent of the business’s stock.

In practice, the SBA will provide outreach and educational materials to licensed small business investment companies to increase investment in transitions to employee-owned businesses. Further, the SBA will launch a Small Business Employee Ownership and Cooperatives Promotion Program that will offer technical assistance and training on the move to employee ownership through a qualified employee trust.

When Rep. Nydia Velázquez, D-N.Y., introduced H.R. 5236 to the House in March, she said, “The bill before us will reward workers and invest in our main street economy by improving the lending landscape for employee-owned businesses, such as employee stock ownership plans and co-ops.” Further, The ESOP Association President Michael Keeling added “This new law shows, once again, that employee ownership enjoys support that is bipartisan and bicameral. Enabling employees to share in the profits they help generate is just good business and good economic policy.”

To learn more about ESOPs and the effect of the MSEOA, contact Angela or your trusted BKD advisor.

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