Employee-Owned S-Corporations of America

Employee-Owned S-Corporations of America: The Unwavering Voice of S-Corp Advocacy

Effective bipartisan outreach provides outstanding ESOP security at ESCA

The realm of Employee Stock Ownership Plans (ESOPs) within S-Corporations presents a nuanced landscape. It is a fact that S-Corporations have clear advantages when it comes to employee ownership, but with those advantages come a distinctive set of hurdles.

From navigating intricate transitions in ownership to addressing nuanced tax implications to maintaining regulatory compliance, these are conditions that demand strategic insight and adaptability.

However, even as S-Corporations continue to forge their paths, there remains another crucial component that must be addressed in order for these businesses to sustain their success under the ESOP framework.

They need a voice, a trustworthy advocate who can communicate the value of the ESOP framework to the political powers that govern them and keep that structure locked in place.

Luckily, Employee-Owned S-Corporations of America (ESCA) has proven itself to be that voice. Based in Washington, D.C., this organization has stood as the exclusive representative of employee-owned S-Corp for the past 25 years.

It has consistently followed through on its mission to shed light on the unique ecosystem of employee-owned S-Corporations face by helping the regulatory powers above them understand both the challenges they face and the massive benefits these businesses stand to give to their employees and the general public.

The S-Corp Solution That Started It All

ESCA has a rich history, dating back to the late-to-mid 1990s, and unsurprisingly, its origin reflects the mission and purpose that it continues to honor today.

This organization was born from the need of a single business owner of a cheque printing business in Minnesota who found himself at the endpoint of his career.

He was looking to transition out of the business, and seeing that his children weren’t looking to inherit the company, an ESOP structure became the next, most viable solution.

However, there was just one problem… his business was an S-Corporation, and at the time, S-Corporations weren’t allowed to be owned under an ESOP structure.

Stephanie Silverman, President and CEO

Fortunately, his business was part of a group called the S-Corporation Association (SCA), which was represented by Stephanie Silverman, whom he contacted about this issue.

Silverman immediately took action to create a solution, which came in the form of the SCA forming a team to lobby and work with Congress to make key changes to the rules surrounding S-Corporations and ESOPs. The SCA was highly successful, and those changes were ultimately implemented in a 1996 tax bill that allowed for S-Corp ownership under the ESOP business model.

The law was effectively changed and went into effect in 1998, and what started as an isolated case to help a single business owner blossomed into a realization that the ESOP model, specifically for S-Corporations, needed to be safeguarded.

So, shortly after, Silverman founded ESCA and to this day acts as its current President & CEO, birthing a legacy of peerless advocacy and protection.

ESCA’s Primary Method of Advocacy

With there being a law protecting S-Corporations from being ousted from the ESOP structure, it’s easy to think that ESCA shouldn’t really have much work on its hands in terms of ESOP advocacy.

Noelle Montaño, Executive Director

However, according to ESCA Executive Director Noelle Montaño, that misconception is exactly why ESCA works so hard to consistently provide ESOP-owned S-Corporations a voice.

“There [needs] to be a group in Washington, D.C., that will make sure that Congress doesn’t change this new structure because what Congress creates, they can certainly take away,” Montaño explains.

The heart of ESCA’s mission lies in advocating for the preservation and enhancement of S-Corp ESOPs. This goes beyond a legislative win; it’s about fostering a community committed to the principles of employee ownership.  As a result, ESCA is constantly on the hunt for new information and credible collaborations that can help them in their endeavors.

For example, the organization conducts significant research and studies in conjunction with the National Center of Employee Ownership (NCEO) as well as other reputable economists on an annual basis.

These studies tend to focus on showing how employee-owned businesses take care of their employee-owners, the types of benefits they offer them, as well as how they compare to other businesses in the same industries that aren’t employee-owned.

“We need all of this data to help tell our story on Capitol Hill to policymakers,” Montaño explains, pointing out that ESCA’s studies are designed to provide answers that not only provide clarity but also ensure the continuity of a model that empowers both businesses and their workforce.

Additionally, it’s incredibly important to note that the data gathered in these studies aren’t always just number-based; a sizeable portion of it is quite personal and experiential.

ESCA meets with “employee-owners whose lives have been changed by having a stake in their company, and they tell a story about how they will come together in hard times,” Montaño says, referring to how being financially invested inspired the employee-owners of many of ESCA’s members to band together to ensure that their companies stayed afloat during the COVID-19 pandemic.

“So, they tell that story, but that is [also] supplemented by this great data that we have that shows us the strength of these businesses–the dollars in terms of retirement savings,” Montaño says. And the numbers certainly do speak for themselves, as ESCA has consistently been able to show policymakers that employee-owners can amass 1.5 to 2 times what they would save in a 401k.

When the numbers are combined with the actual experiences that generated them, it demonstrates that employee-owners of S-Corp ESOPs have a clear commitment to their businesses that, in return, reward them with substantial wealth for their retirement.

The Core Benefits of ESCA Membership

The legislative advocacy that ESCA provides its members is undoubtedly invaluable, but complementary to that is the fact ESCA membership grants companies access to a community that shares the same goal of protecting its benefits as well as securing more benefits.

When broken down into its simplest pieces, ESCA provides its members with a surplus of networking and collaborative opportunities between its members. But it also provides them with multi-faceted support that can aid them from multiple angles and even assist with business acquisitions.

“I think our members see a lot of value in being a [part] of ESCA,” Montaño begins, “Our membership includes leaders from some of the biggest employee-owned companies in the country. In addition… [our] advisors, valuation experts, attorneys, and bankers help support companies and facilitate transition options when a business owner is selling to an ESOP.”

Because the ESCA membership is comprised of such elite organizations, there is a large degree of information sharing between members, as well as organic business deals that often arise as a result.

And even with all of its current value, ESCA continues to add on more perks through its consistent advocacy of ESOPs on Capitol Hill. The bridge they build between the two realms ensures that the significance of ESOPs is preserved in legislative deliberations.

“We’ve been working with a bipartisan group of members of the tax-writing committee on legislation that will provide an incentive for business owners to transition to ESOP ownership,” Montaño says.

The bill currently has around 30 Senate co-sponsors and was just introduced at the end of July this year. With such consistent effort, the desired incentives are sure to become a legal reality, especially considering the fact that ESCA members host regular lobby days where hundreds of their members meet with hundreds of congressional representatives.

With such spirited outreach, ESCA members will be able to secure the desired legislative advantages and also help Congressional members reach a point where they can be proud of passing policies that support such a beneficial business model.

Continued Success on the Horizon

As ESCA looks to the future, the emphasis remains on sustained growth, education, and legislative support. The organization has already secured big wins and, from the looks of it, will continue to do so.

One of its recent victories includes getting Congress to instruct the Department of Labor to issue adequate consideration regulations for companies transitioning into ESOPs to help eliminate any unnecessary investigations or audits within the process.

There was even a portion of the tax incentive for transitioning businesses it has been advocating for that was included in a recent legislative package. So, it’s clear that ESCA’s efforts are steadily leading to the desired results in both organizational growth and political outcomes.

“We can’t just sit back and be passive and say because Congress did something good, it will always be there. So, this is something important that is worthy of protecting,” Montaño says.

If there is anything that existing S-Corp ESOPs should know about ESCA, it’s that, as an organization, ESCA exists solely to protect the model that means so much to them. “We’re [your] insurance policy, [your] eyes and ears in Washington,” Montaño says.

In the next decade, ESCA envisions a landscape where the ESOP model continues to flourish, supported by bipartisan initiatives and a growing awareness of its transformative potential.

It’s a future where employee ownership isn’t just a business model but a community-driven movement with lasting implications for businesses, employees, and the communities they serve.

AT A GLANCE

Employee-Owned S Corporations of America (ESCA)

What: An organization acting as a stalwart voice for S-Corp ESOPs to shape the future into a landscape where the ESOP model thrives as a transformative force for businesses, employees, and communities.

Where: Washington, D.C.

Website: www.esca.us