THE OWNERSHIP SOCIETY:

The federal government just made it a lot easier to form an employee-owned business.

In an increasingly rare example of bipartisan cooperation, President Donald Trump on Aug. 13 signed a defense bill into law that included a popular provision that allows the Small Business Administration to straightforwardly loan money to employee-owned businesses that wish to buy out retiring small business owners.

This and other changes in the provisions are significant. Not only could they double or even triple the growth rate of employee-owned companies over the next decade, we expect they will help stabilize jobs in local communities as well as reduce inequality by giving more middle-class families a means of accumulating wealth. [...]

A few employee-owned companies include grocery chain Publix Super Markets and staffing firm Penmac - the two biggest - as well as food companies King Arthur Flour and Bob's Red Mill and breweries Harpoon and New Belgium Brewery, maker of Fat Tire beer. [...]

The provision, previously known as the Main Street Employee Ownership Act, was written by Democratic Sen. Kirsten Gillibrand and had co-sponsors on both sides of the political aisle. It is the most far-reaching employee share ownership legislation to pass Congress in over 20 years.

Its most important element involves permitting the SBA to clear away many previous barriers so it can make guaranteed loans of up to $5 million to employee-owned businesses, especially ESOPS and worker cooperatives. This will make employee buyouts easier to do by significantly expanding the amount of credit available and will create more flexibility for sellers so that they can transition out of their businesses over a few years.

The law also tasks the SBA with providing more awareness, technical assistance and training both to the small business owners who might be interested in selling to their employees and to the workers themselves.

We've observed that past efforts to encourage employee ownership by the federal government led to large growth spurts, such as laws passed 30 and 20 years ago that offered tax incentives. That's why we would estimate the latest measure to double or even triple the growth of employee-owned companies.

The legislation's impact could be far-reaching.

If it's successful in leading more small business owners to sell to employees, it could help reduce economic inequality. That's because the primary beneficiaries would be working- and middle-class employees who would suddenly have a new way to build a substantial amount of capital.

Furthermore, it'll help preserve local jobs and the tax base because as we noted these small businesses often end up closing down because there's no one to take over. In addition, employee-owned companies have shown greater resiliency in times of economic stress, leading to fewer layoffs. And research shows that these types of companies offer better pay and benefits than other types of businesses.

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