Cooperatives and employee-owned companies through employee stock ownership plans (ESOPs) have become a critical part of North Carolina’s economy. North Carolina’s 26 electric cooperatives, for example, serve more than 2.5 million people in 93 counties and employ 2,300 skilled workers. Their $5.8 billion in assets are owned by their customers, 99 percent of whom are residents and small businesses. Similarly, North Carolina law has long supported the formation of credit unions, which is why North Carolina today is home to such impressive and innovative institutions as the State Employees’ Credit Union, which has more than 1.9 million members, and the Latino Community Credit Union, which has 55,000 members, the overwhelming majority of whom likely would be unbanked if not for the credit union. North Carolina is also home to one of the most innovative community development financial institutions in the United States, the Center for Community Self-Help, which is based in Durham and has loaned over $5.5 billion to low-income populations.
An employee stock ownership plan is essentially an employee benefit plan. Each full-time employee owns stock in their company, typically based on relative pay and/or seniority. ESOPs encourage transparency and accountability, and contribute to a supportive work environment. A Harvard Business School study found that employee-owned businesses see increased production and profitability.1
Looking forward, cooperatives can play an even bigger role in expanding access to capital, accelerating local business ownership, building personal assets, and financing community economic development. What are needed are specific policies to accelerate innovation and entrepreneurship across North Carolina.2
Provide funding and technical support needed to help interested companies establish employee stock ownership plans (ESOP).
The state could provide technical assistance, education, and marketing to companies interested in establishing an ESOP in order to increase the number of such companies, particularly in distressed urban and rural communities. Some of these funds could also be used to create a micro-loan fund to help companies transition to an ESOP.3
Provide a Capital Gain tax deduction for a North Carolina company converting to an ESOP.
To incentivize current business owners to sell their companies to an ESOP, North Carolina could provide owners who sell at least 50 percent of their company to their employees and create an employee stock ownership plan, as defined in section 4975 (e) (7) of the Internal Revenue Code, with a full deduction of the capital gains tax on their personal income tax in the subsequent tax year.
1 Rosen, C., Case, J., Staubus, M. (2005). "Equity: Why Employee Ownership Is Good for America." Harvard Business School Press.
2 Gergen, Christopher and Stephen Martin. (November 8, 2014). "Worker ownership benefits these NC companies." News & Observer.
3 Iowa State Legislature. House File 2085.