Daniel T. Goodwin Law
Colorado Legislative Watch: Encouraging Employee Ownership of Small Businesses
UPDATE (4/21/2017): House Bill 17-1214 passed both the House and the Senate and is on its way to Governor Hickenlooper’s desk for signature!
On February 27, 2017, House Bill 17-1214 was introduced in the Colorado House of Representatives. The goals of the Bill are to educate state policy makers on the benefits of employee ownership and to create a revolving loan fund through the Office of Economic Development to assist existing small business with converting to employee ownership.
Nearly half of Colorado’s workforce is employed by small businesses, but this workforce is approaching a potential economic crisis: About 66% of small businesses in the U.S. are owned by “Baby Boomers” who are going to be retiring in ever-increasing numbers over the next decade. However, many of these Boomer business owners have no succession plan for their businesses upon retirement, and market analysts are predicting there aren’t going to be enough buyers for all these small companies hitting the market. Thus, not having a concrete succession plan increases the risk that these companies will simply be liquidated – assets sold, accounts closed, and employees laid off.
A number of recent studies on employee ownership show that employee-owned companies are statistically better for the economy than traditional ownership models. For example, employee-owned companies have lower rates of layoffs and lower rates of failure after 5 years of business. Employee-owned companies also have better annual sales figures, and employees in an employee-owned company earn 5-12% more than their counterparts at other businesses. These benefits are rooted in the fact that in a democratically-controlled, employee-owned company, the goals and motivations between management and the workforce are aligned.
So, the goal of H.B. 17-1214 is to convince and assist these retiring Boomer business owners “sell” their companies to their employees!
Fundamentally, employee-ownership could be a meaningful way to address the growing income- and earnings-inequality that is plaguing our country. If H.B. 17-1214 passes, it will be an exciting development in Colorado and perhaps, a model for the rest of the country on the economic benefits employee ownership!