Amended IN Assembly August 15, 2022 Amended IN Assembly June 28, 2022 Amended IN Assembly June 14, 2022 Amended IN Senate March 16, 2022 CALIFORNIA LEGISLATURE 20212022 REGULAR SESSION Senate Bill No. 1407Introduced by Senator Becker(Principal coauthor: Assembly Member Kalra)(Coauthors: Senators Borgeas, Ochoa Bogh, and Portantino)(Coauthors: Assembly Members Haney and Ting)February 18, 2022An act to add Article 6.6 (commencing with Section 12100.30) to Chapter 1.6 of Part 2 of Division 3 of Title 2 of the Government Code, relating to economic development.LEGISLATIVE COUNSEL'S DIGESTSB 1407, as amended, Becker. California Employee Ownership Act.Existing law establishes the Office of Small Business Advocate (CalOSBA) within the Governors Office of Business and Economic Development, also known as GO-Biz, to advocate for causes of small business and to provide small businesses with the information they need to survive in the marketplace. This bill would, upon appropriation by the Legislature, establish the California Employee Ownership Act Hub within the Office of Small Business Advocate, administered by an Employee Ownership Hub Manager, to assist small businesses in transitioning to employee ownership. The bill would establish, upon appropriation by the Legislature, an Employee Ownership Education and Outreach Grant Program, administered by the manager, for the purpose of funding education and outreach programs that increase awareness and understanding of employee ownership transitions, as defined. Grants would be awarded to no more than 5 qualified nonprofit organizations, as described, for purposes of performing qualified education and outreach services, as specified. The bill would require exactly one grant to be awarded to a qualified nonprofit organization for the purpose of developing a statewide coordinated marketing campaign related to transitions of businesses to employee ownership models. Advocate to increase awareness and understanding of employee ownership among stakeholders, assist business owners and employees in navigating available resources, and streamline and reduce barriers to employee ownership. The bill would require an Employee Ownership Hub Manager to administer the hub, and would authorize the manager to be responsible for prescribed duties, including partnering with specified state agencies and private entities to promote employee ownership transitions.The bill would also establish, upon appropriation by the Legislature, an Employee Ownership Conversion Technical Assistance Grant Program, administered by the manager, to partially subsidize conversion costs for qualified businesses transitioning to broad-based employee ownership vehicles, as defined. The bill would direct the manager to preapprove grants and distribute grant funds to qualified service providers, as defined, upon receipt of invoices for qualified conversion costs. The bill would allow grants to cover the lesser of 50% of the cost of qualified conversion services, as defined, or $50,000.Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO Bill TextThe people of the State of California do enact as follows:SECTION 1. Article 6.6 (commencing with Section 12100.30) is added to Chapter 1.6 of Part 2 of Division 3 of Title 2 of the Government Code, immediately following Section 12100, to read: Article 6.6. California Employee Ownership Act12100.30. This article shall be known, and may be cited, as the California Employee Ownership Act.12100.31. The Legislature finds and declares all of the following:(a) Californias small businesses continue to contend with the pressures of the aging baby boomer business owners who are at or near retirement and desperately looking for an exit. According to national surveys, 79 percent of business owners want to retire within 10 years, 60 percent in less than 5 years, and 33 percent in less than 3 years. However, only 15 percent of businesses successfully transition to the next generation in the family, and only 20 percent of commercial listings actually sell. Nearly 360,000 California businesses, employing 3.9 million workers, are at risk because their owners are nearing retirement.(b) Rather than closing for good or selling to large, out-of-state buyers, small business owners can find willing buyers in the people who work alongside them every day: their employees. Doing so would anchor essential production and services in communities, protect livelihoods, avert layoffs, and save the state money.(c) Employees becoming owners would create opportunities for wealth-building and community stability. It would also help California create a more inclusive, equitable, and stable economy, supported by the studies of employee-owned businesses and their success and resiliency during the Great Recession and the COVID-19 pandemic.(d) Fairness to employees is critical for the success of employee ownership transactions. Employee ownership should supplement, not supplant, fair wages, health insurance, retirement benefits, and the freedom to join a union. Employee ownership transactions should be structured to provide employees with a fair valuation of their ownership stake with an independent trustee as a best practice for the transaction. Employee ownership transactions through an Employee Stock Ownership Plan (ESOP) should be structured to provide employees with a fair valuation of their ownership stake with an independent trustee as a best practice for the transaction. Professional feasibility assessments are a best practice for transitions to all broad-based employee ownership forms.(e) While the benefits of employee ownership are well documented, many stakeholders in the business and workforce ecosystems are unaware of broad-based employee ownership forms and their benefits, best practices for their implementation, or opportunities for their widespread expansion. In partnership with leaders in the field of employee ownership, the State of California can play a catalytic role in raising awareness of all forms of broad-based employee ownership, increasing access to capital for employee-owned enterprises, encouraging best practices, and ensuring that workers who are most burdened by income and wealth inequality and the racial wealth gap gain access to wealth, quality jobs, and workplace voice through employee ownership. (e)(f) It is the intent of the Legislature to establish a dedicated hub within the Office of Small Business Advocate that will help educate stakeholders about employee ownership, increase awareness and understanding of employee ownership among stakeholders, assist business owners and employees in navigating available resources, provide funding for education, outreach, and technical assistance, and streamline and reduce barriers to employee ownership.12100.32. For purposes of this article, the following definitions shall apply:(a) Advocate means the Small Business Advocate. (b) Broad-based employee ownership vehicle means any of the following:(1) An employee-owned corporation, as that term is defined in subdivision (c) of Section 91502.1.(2) An eligible worker-owned cooperative or an eligible cooperative, as defined in subdivision (e). member-owned organization where the voting interest or stock is held by members, and the governing body is elected by the members on the basis of one vote per member.(3) A business wherein the majority of stock is owned by an employee stock ownership plan. plan, as defined in subdivision (f), or by another trust on behalf of the companys employees.(4) A business wherein the majority of which is owned by a trust that has the purposes of creating employee ownership and of promoting the financial and nonfinancial interests of all employees.(5) A worker cooperative or employment cooperative, as defined in subdivision (k).(6) A member-owned organization that includes workers as members and where the voting interest or stock is held by members, and the majority of the governing body is elected by the members on the basis of one vote per member.(c) California capital programs means state programs offering capital assistance to businesses, including, but not limited to, the Small Business Loan Guarantee Program, the State Small Business Credit Initiative, the California Rebuilding Fund, and the California Capital Access Program.(d) CalOSBA or office means the Office of Small Business Advocate within the Governors Office of Business and Economic Development. (e) Eligible worker-owned cooperative has the same definition as that term is defined in paragraph (2) of subsection (c) of Section 1042 of the Internal Revenue Code, as that provision read on January 1, 2022.(f) Employee stock ownership plan or ESOP has the same definition as that term is defined in paragraph (7) of subsection (e) of Section 4975 of the Internal Revenue Code, as that provision read on January 1, 2022.(g) Employee ownership transition means the process of a business entering a broad-based employee ownership vehicle.(h) Feasibility assessment means a financial assessment of a companys debt capacity and other factors that will determine viable employee-ownership employee ownership transition scenarios.(i) Independent ESOP trustee means an ESOP trustee that is unrelated to the company, its officers, and its shareholders, and is in the business of serving as an ESOP fiduciary. (j) Manager means the Employee Ownership Hub Manager.(k) Worker cooperative or employment cooperative has the same definition as those terms are defined in Section 12253.5 of the Corporations Code.12100.33. (a) Upon appropriation by the Legislature, the Office of Small Business Advocate CalOSBA shall establish the California Employee Ownership Hub, administered by an Employee OwnershipHub Ownership Hub Manager, appointed by the advocate.(b) The manager shall administer the Employee Ownership Hub, and may be responsible for the following duties:(1)Manage the Employee Ownership Education and Outreach Grants Program and the Employee Ownership Conversion Technical Assistance Grant Program. (2)(1) (A)Work with all California state agencies whose regulations and programs affect employee-owned companies, and businesses with the potential to become employee-owned, to enhance opportunities and reduce barriers.(B)For the purpose of developing recommendations to enhance the ability of employee-owned companies to access California capital programs, the recommendations shall only apply to ESOPs that satisfy one of the following conditions:(i)The ESOP has appointed an independent ESOP trustee.(ii)The ESOP has, as a trustee, a person or entity that has completed education on ESOP trustee best practices.(3)(2) Partner with grantee partners, and other relevant private, nonprofit, and public organizations including, but not limited to, professional and trade associations, financial institutions, labor unions, worker centers, Small Business Development Centers, economic and workforce development organizations, and nonprofit entities to promote employee ownership benefits and educate business owners and employees about the benefits of employee ownership and employee ownership transition succession models.(4)(3) Develop and make available Share materials regarding employee ownership benefits and employee ownership transition succession models.(5)(4) Provide a referral service to help business owners, labor unions, workers, and worker centers find appropriate legal, financial, and technical employee ownership resources and services. services to assist in employee ownership transitions and the growth of employee-owned businesses.(6)(5) Work with the California Infrastructure and Economic Development Bank, the California Pollution Control Financing Authority, and related entities to shape and implement guidance on lending to broad-based employee ownership vehicles. develop recommendations and enhance the ability of broad-based employee ownership vehicles to access California capital programs. Those recommendations shall only apply to ESOPs to the extent that the ESOPs satisfy one of the following conditions:(A) The ESOP has appointed an independent ESOP trustee.(B) The ESOP has, as a trustee, a person or entity that has completed education on ESOP trustee best practices.(7)(6) Report to the Legislature, in accordance with Section 9795, on activities undertaken pursuant to this article by the hub during the prior fiscal year, including recommendations for improvement.(A) The first report shall be due on January 15, following the first fiscal year in which funding is provided to implement any portion of this article.(B) This reporting requirement may be met separately or the information may be included in the annual report required by subdivision (b) of Section 12098.4.(C) The Office of Small Business Advocate CalOSBA shall also post the report to its internet website.(8)(7) Report employee ownership transition related concerns and recommendations to the advocate.12100.34.(a)Upon appropriation by the Legislature, the manager shall establish and administer an Employee Ownership Education and Outreach Grant Program with the purpose of funding education and outreach programs that increase awareness and understanding of employee ownership transitions.(b)Funding will be awarded to nonprofit organizations to develop and implement outreach initiatives and education programs that increase awareness about business transitions to broad-based employee ownership vehicles.(c)The manager shall award grants to qualified nonprofit organizations for the purpose of performing qualified education and outreach services described in subdivision (g), including exactly one grant for the purpose of a marketing campaign as described in paragraph (2) of subdivision (g).(d)Grant awards shall be made for an initial two-year term, beginning July 1, 2023, and ending June 1, 2025. Grantees may apply for renewal or extension of the initial two-year term, subject to approval by CalOSBA and availability of funds, through the 202627 fiscal year.(e)The manager shall award grants to no more than five qualified nonprofit organizations during any two-year term.(f)Indirect costs shall not exceed 15 percent of total expenses of each grant.(g)(1)Qualified education and outreach services shall include the following:(A)Services designed to increase awareness of worker ownership and transitions to broad-based employee ownership vehicles.(B)Services designed primarily to reach a high volume of business owners through direct outreach, or through educational intermediaries, including the following:(i)Capital providers.(ii)Professional service providers.(iii)Business technical assistance providers.(iv)Industry and business associations.(v)Labor unions and worker centers.(vi)Local governmental entities.(C)(i)Development of a statewide coordinated marketing campaign to increase business owner and business service provider awareness of transitions to broad-based employee ownership vehicles and available Employee Ownership Hub resources, including the Employee Ownership Conversion Technical Assistance Grant Program established pursuant to Section 12100.35.(ii)The marketing campaign shall be developed with input from, and made available to, all grantees and the manager, to enhance clear messaging and high-quality marketing in all services provided under the Employee Ownership Hub.(2)Qualified education and outreach services may also include outreach and education by labor unions and worker centers to businesses that may be a good fit for a transition to employee ownership. (3)When delivering qualified education and outreach services, grantees shall include information on all types of broad-based employee ownership vehicles and on the range of governance and management structures that are possible within them, including democratically governed business structures and employee participation in business decisionmaking and governance.(h)(1)To be eligible for a grant under the program, a qualified nonprofit organization shall satisfy all of the following:(A)Demonstrated experience in providing outreach and education about worker ownership and about business transitions to one or more broad-based employee ownership vehicles.(B)Demonstrated experience providing outreach and education services in California.(2)Labor unions and worker centers may also be awarded grants in partnership with a qualified nonprofit organization to support education and outreach to businesses that are at risk of closure or succession.(i)The manager shall prepare an annual report meeting the requirements of paragraph (7) of subdivision (b) of Section 12100.33 that includes the following:(1)Number of businesses reached.(2)Types and number of outreach activities.(3)The information provided through these activities.12100.35.(a)Upon appropriation by the Legislature, the manager shall establish and administer, or contract with a third party or grant partner to administer, an Employee Ownership Technical Assistance Grant Program with the purpose of subsidizing the cost of conversion to employee ownership.(b)The purpose of the grant program is to partially subsidize conversion costs for qualified businesses transitioning to broad-based employee ownership vehicles, making these transitions more accessible to California businesses, ensuring these transitions benefit California workers, and creating wealth building opportunities for Californians.(c)(1)The manager shall preapprove grant applications to qualified service providers, and disburse grant funds upon receipt of invoices or contracts for qualified conversion services rendered to one or more qualified businesses.(2)Grant awards shall not exceed the lesser of 50 percent of the costs of qualified conversion services of a qualified business or fifty thousand dollars ($50,000).(3)Qualified service providers shall provide information about each qualified business receiving qualified conversion services, including the name, primary address, and business entity identifying number on file with the Secretary of State.(d)For purposes of this section, the following definitions shall apply:(1)(A)Qualified business means a business that is considering or undergoing a transition to employee ownership, and that satisfies all of the following:(i)Is headquartered in California.(ii)Has at least 10 employees.(iii)Has been in business for at least 10 years.(B)Notwithstanding subparagraph (A), the manager may make exceptions for businesses with as few as three employees, and for businesses in operation less than 10 years.(2)Qualified conversion services shall include, but not be limited to, the following:(A)Prefeasibility assessments.(B)Feasibility assessments.(C)Accounting services.(D)Legal services.(E)Transition plans.(F)Succession planning services.(G)Training for workers on employee ownership and democratic management and governance.(3)(A)Qualified service provider means a provider of services listed in paragraph (2), that satisfies all of the following:(i)Has at least two years of experience working with businesses considering or undertaking a transition to employee ownership.(ii)In the case of a service provider that is providing feasibility studies, either has demonstrated experience in assessing debt capacity and conducting employee ownership feasibility studies, or is providing feasibility studies in collaboration with another business entity that has such demonstrated experience.(B)A qualified service provider may provide for some or all of the services listed in paragraph (2) through contracts with other business entities.(e)The manager shall prepare an annual report meeting the requirements of paragraph (7) of subdivision (b) of Section 12100.33 that includes the following:(1)Number of businesses served using funds awarded pursuant to this section.(2)Types of services provided.(3)Number of jobs created or saved.12100.36.Nothing in this article prevents or creates an exclusion for employee-owned companies from participating in California capital programs, including, but not limited to, the provision of commercial loans, subordinated debt, and synthetic equity to broad-based employee ownership vehicles, or the use of those programs for the purchase of, or facilitation of the purchase of, broad-based employee ownership vehicles.
Amended IN Assembly August 15, 2022 Amended IN Assembly June 28, 2022 Amended IN Assembly June 14, 2022 Amended IN Senate March 16, 2022 CALIFORNIA LEGISLATURE 20212022 REGULAR SESSION Senate Bill No. 1407Introduced by Senator Becker(Principal coauthor: Assembly Member Kalra)(Coauthors: Senators Borgeas, Ochoa Bogh, and Portantino)(Coauthors: Assembly Members Haney and Ting)February 18, 2022An act to add Article 6.6 (commencing with Section 12100.30) to Chapter 1.6 of Part 2 of Division 3 of Title 2 of the Government Code, relating to economic development.LEGISLATIVE COUNSEL'S DIGESTSB 1407, as amended, Becker. California Employee Ownership Act.Existing law establishes the Office of Small Business Advocate (CalOSBA) within the Governors Office of Business and Economic Development, also known as GO-Biz, to advocate for causes of small business and to provide small businesses with the information they need to survive in the marketplace. This bill would, upon appropriation by the Legislature, establish the California Employee Ownership Act Hub within the Office of Small Business Advocate, administered by an Employee Ownership Hub Manager, to assist small businesses in transitioning to employee ownership. The bill would establish, upon appropriation by the Legislature, an Employee Ownership Education and Outreach Grant Program, administered by the manager, for the purpose of funding education and outreach programs that increase awareness and understanding of employee ownership transitions, as defined. Grants would be awarded to no more than 5 qualified nonprofit organizations, as described, for purposes of performing qualified education and outreach services, as specified. The bill would require exactly one grant to be awarded to a qualified nonprofit organization for the purpose of developing a statewide coordinated marketing campaign related to transitions of businesses to employee ownership models. Advocate to increase awareness and understanding of employee ownership among stakeholders, assist business owners and employees in navigating available resources, and streamline and reduce barriers to employee ownership. The bill would require an Employee Ownership Hub Manager to administer the hub, and would authorize the manager to be responsible for prescribed duties, including partnering with specified state agencies and private entities to promote employee ownership transitions.The bill would also establish, upon appropriation by the Legislature, an Employee Ownership Conversion Technical Assistance Grant Program, administered by the manager, to partially subsidize conversion costs for qualified businesses transitioning to broad-based employee ownership vehicles, as defined. The bill would direct the manager to preapprove grants and distribute grant funds to qualified service providers, as defined, upon receipt of invoices for qualified conversion costs. The bill would allow grants to cover the lesser of 50% of the cost of qualified conversion services, as defined, or $50,000.Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO
Amended IN Assembly August 15, 2022 Amended IN Assembly June 28, 2022 Amended IN Assembly June 14, 2022 Amended IN Senate March 16, 2022
Amended IN Assembly August 15, 2022
Amended IN Assembly June 28, 2022
Amended IN Assembly June 14, 2022
Amended IN Senate March 16, 2022
CALIFORNIA LEGISLATURE 20212022 REGULAR SESSION
Senate Bill
No. 1407
Introduced by Senator Becker(Principal coauthor: Assembly Member Kalra)(Coauthors: Senators Borgeas, Ochoa Bogh, and Portantino)(Coauthors: Assembly Members Haney and Ting)February 18, 2022
Introduced by Senator Becker(Principal coauthor: Assembly Member Kalra)(Coauthors: Senators Borgeas, Ochoa Bogh, and Portantino)(Coauthors: Assembly Members Haney and Ting)
February 18, 2022
An act to add Article 6.6 (commencing with Section 12100.30) to Chapter 1.6 of Part 2 of Division 3 of Title 2 of the Government Code, relating to economic development.
LEGISLATIVE COUNSEL'S DIGEST
## LEGISLATIVE COUNSEL'S DIGEST
SB 1407, as amended, Becker. California Employee Ownership Act.
Existing law establishes the Office of Small Business Advocate (CalOSBA) within the Governors Office of Business and Economic Development, also known as GO-Biz, to advocate for causes of small business and to provide small businesses with the information they need to survive in the marketplace. This bill would, upon appropriation by the Legislature, establish the California Employee Ownership Act Hub within the Office of Small Business Advocate, administered by an Employee Ownership Hub Manager, to assist small businesses in transitioning to employee ownership. The bill would establish, upon appropriation by the Legislature, an Employee Ownership Education and Outreach Grant Program, administered by the manager, for the purpose of funding education and outreach programs that increase awareness and understanding of employee ownership transitions, as defined. Grants would be awarded to no more than 5 qualified nonprofit organizations, as described, for purposes of performing qualified education and outreach services, as specified. The bill would require exactly one grant to be awarded to a qualified nonprofit organization for the purpose of developing a statewide coordinated marketing campaign related to transitions of businesses to employee ownership models. Advocate to increase awareness and understanding of employee ownership among stakeholders, assist business owners and employees in navigating available resources, and streamline and reduce barriers to employee ownership. The bill would require an Employee Ownership Hub Manager to administer the hub, and would authorize the manager to be responsible for prescribed duties, including partnering with specified state agencies and private entities to promote employee ownership transitions.The bill would also establish, upon appropriation by the Legislature, an Employee Ownership Conversion Technical Assistance Grant Program, administered by the manager, to partially subsidize conversion costs for qualified businesses transitioning to broad-based employee ownership vehicles, as defined. The bill would direct the manager to preapprove grants and distribute grant funds to qualified service providers, as defined, upon receipt of invoices for qualified conversion costs. The bill would allow grants to cover the lesser of 50% of the cost of qualified conversion services, as defined, or $50,000.
Existing law establishes the Office of Small Business Advocate (CalOSBA) within the Governors Office of Business and Economic Development, also known as GO-Biz, to advocate for causes of small business and to provide small businesses with the information they need to survive in the marketplace.
This bill would, upon appropriation by the Legislature, establish the California Employee Ownership Act Hub within the Office of Small Business Advocate, administered by an Employee Ownership Hub Manager, to assist small businesses in transitioning to employee ownership. The bill would establish, upon appropriation by the Legislature, an Employee Ownership Education and Outreach Grant Program, administered by the manager, for the purpose of funding education and outreach programs that increase awareness and understanding of employee ownership transitions, as defined. Grants would be awarded to no more than 5 qualified nonprofit organizations, as described, for purposes of performing qualified education and outreach services, as specified. The bill would require exactly one grant to be awarded to a qualified nonprofit organization for the purpose of developing a statewide coordinated marketing campaign related to transitions of businesses to employee ownership models. Advocate to increase awareness and understanding of employee ownership among stakeholders, assist business owners and employees in navigating available resources, and streamline and reduce barriers to employee ownership. The bill would require an Employee Ownership Hub Manager to administer the hub, and would authorize the manager to be responsible for prescribed duties, including partnering with specified state agencies and private entities to promote employee ownership transitions.
The bill would also establish, upon appropriation by the Legislature, an Employee Ownership Conversion Technical Assistance Grant Program, administered by the manager, to partially subsidize conversion costs for qualified businesses transitioning to broad-based employee ownership vehicles, as defined. The bill would direct the manager to preapprove grants and distribute grant funds to qualified service providers, as defined, upon receipt of invoices for qualified conversion costs. The bill would allow grants to cover the lesser of 50% of the cost of qualified conversion services, as defined, or $50,000.
## Digest Key
## Bill Text
The people of the State of California do enact as follows:SECTION 1. Article 6.6 (commencing with Section 12100.30) is added to Chapter 1.6 of Part 2 of Division 3 of Title 2 of the Government Code, immediately following Section 12100, to read: Article 6.6. California Employee Ownership Act12100.30. This article shall be known, and may be cited, as the California Employee Ownership Act.12100.31. The Legislature finds and declares all of the following:(a) Californias small businesses continue to contend with the pressures of the aging baby boomer business owners who are at or near retirement and desperately looking for an exit. According to national surveys, 79 percent of business owners want to retire within 10 years, 60 percent in less than 5 years, and 33 percent in less than 3 years. However, only 15 percent of businesses successfully transition to the next generation in the family, and only 20 percent of commercial listings actually sell. Nearly 360,000 California businesses, employing 3.9 million workers, are at risk because their owners are nearing retirement.(b) Rather than closing for good or selling to large, out-of-state buyers, small business owners can find willing buyers in the people who work alongside them every day: their employees. Doing so would anchor essential production and services in communities, protect livelihoods, avert layoffs, and save the state money.(c) Employees becoming owners would create opportunities for wealth-building and community stability. It would also help California create a more inclusive, equitable, and stable economy, supported by the studies of employee-owned businesses and their success and resiliency during the Great Recession and the COVID-19 pandemic.(d) Fairness to employees is critical for the success of employee ownership transactions. Employee ownership should supplement, not supplant, fair wages, health insurance, retirement benefits, and the freedom to join a union. Employee ownership transactions should be structured to provide employees with a fair valuation of their ownership stake with an independent trustee as a best practice for the transaction. Employee ownership transactions through an Employee Stock Ownership Plan (ESOP) should be structured to provide employees with a fair valuation of their ownership stake with an independent trustee as a best practice for the transaction. Professional feasibility assessments are a best practice for transitions to all broad-based employee ownership forms.(e) While the benefits of employee ownership are well documented, many stakeholders in the business and workforce ecosystems are unaware of broad-based employee ownership forms and their benefits, best practices for their implementation, or opportunities for their widespread expansion. In partnership with leaders in the field of employee ownership, the State of California can play a catalytic role in raising awareness of all forms of broad-based employee ownership, increasing access to capital for employee-owned enterprises, encouraging best practices, and ensuring that workers who are most burdened by income and wealth inequality and the racial wealth gap gain access to wealth, quality jobs, and workplace voice through employee ownership. (e)(f) It is the intent of the Legislature to establish a dedicated hub within the Office of Small Business Advocate that will help educate stakeholders about employee ownership, increase awareness and understanding of employee ownership among stakeholders, assist business owners and employees in navigating available resources, provide funding for education, outreach, and technical assistance, and streamline and reduce barriers to employee ownership.12100.32. For purposes of this article, the following definitions shall apply:(a) Advocate means the Small Business Advocate. (b) Broad-based employee ownership vehicle means any of the following:(1) An employee-owned corporation, as that term is defined in subdivision (c) of Section 91502.1.(2) An eligible worker-owned cooperative or an eligible cooperative, as defined in subdivision (e). member-owned organization where the voting interest or stock is held by members, and the governing body is elected by the members on the basis of one vote per member.(3) A business wherein the majority of stock is owned by an employee stock ownership plan. plan, as defined in subdivision (f), or by another trust on behalf of the companys employees.(4) A business wherein the majority of which is owned by a trust that has the purposes of creating employee ownership and of promoting the financial and nonfinancial interests of all employees.(5) A worker cooperative or employment cooperative, as defined in subdivision (k).(6) A member-owned organization that includes workers as members and where the voting interest or stock is held by members, and the majority of the governing body is elected by the members on the basis of one vote per member.(c) California capital programs means state programs offering capital assistance to businesses, including, but not limited to, the Small Business Loan Guarantee Program, the State Small Business Credit Initiative, the California Rebuilding Fund, and the California Capital Access Program.(d) CalOSBA or office means the Office of Small Business Advocate within the Governors Office of Business and Economic Development. (e) Eligible worker-owned cooperative has the same definition as that term is defined in paragraph (2) of subsection (c) of Section 1042 of the Internal Revenue Code, as that provision read on January 1, 2022.(f) Employee stock ownership plan or ESOP has the same definition as that term is defined in paragraph (7) of subsection (e) of Section 4975 of the Internal Revenue Code, as that provision read on January 1, 2022.(g) Employee ownership transition means the process of a business entering a broad-based employee ownership vehicle.(h) Feasibility assessment means a financial assessment of a companys debt capacity and other factors that will determine viable employee-ownership employee ownership transition scenarios.(i) Independent ESOP trustee means an ESOP trustee that is unrelated to the company, its officers, and its shareholders, and is in the business of serving as an ESOP fiduciary. (j) Manager means the Employee Ownership Hub Manager.(k) Worker cooperative or employment cooperative has the same definition as those terms are defined in Section 12253.5 of the Corporations Code.12100.33. (a) Upon appropriation by the Legislature, the Office of Small Business Advocate CalOSBA shall establish the California Employee Ownership Hub, administered by an Employee OwnershipHub Ownership Hub Manager, appointed by the advocate.(b) The manager shall administer the Employee Ownership Hub, and may be responsible for the following duties:(1)Manage the Employee Ownership Education and Outreach Grants Program and the Employee Ownership Conversion Technical Assistance Grant Program. (2)(1) (A)Work with all California state agencies whose regulations and programs affect employee-owned companies, and businesses with the potential to become employee-owned, to enhance opportunities and reduce barriers.(B)For the purpose of developing recommendations to enhance the ability of employee-owned companies to access California capital programs, the recommendations shall only apply to ESOPs that satisfy one of the following conditions:(i)The ESOP has appointed an independent ESOP trustee.(ii)The ESOP has, as a trustee, a person or entity that has completed education on ESOP trustee best practices.(3)(2) Partner with grantee partners, and other relevant private, nonprofit, and public organizations including, but not limited to, professional and trade associations, financial institutions, labor unions, worker centers, Small Business Development Centers, economic and workforce development organizations, and nonprofit entities to promote employee ownership benefits and educate business owners and employees about the benefits of employee ownership and employee ownership transition succession models.(4)(3) Develop and make available Share materials regarding employee ownership benefits and employee ownership transition succession models.(5)(4) Provide a referral service to help business owners, labor unions, workers, and worker centers find appropriate legal, financial, and technical employee ownership resources and services. services to assist in employee ownership transitions and the growth of employee-owned businesses.(6)(5) Work with the California Infrastructure and Economic Development Bank, the California Pollution Control Financing Authority, and related entities to shape and implement guidance on lending to broad-based employee ownership vehicles. develop recommendations and enhance the ability of broad-based employee ownership vehicles to access California capital programs. Those recommendations shall only apply to ESOPs to the extent that the ESOPs satisfy one of the following conditions:(A) The ESOP has appointed an independent ESOP trustee.(B) The ESOP has, as a trustee, a person or entity that has completed education on ESOP trustee best practices.(7)(6) Report to the Legislature, in accordance with Section 9795, on activities undertaken pursuant to this article by the hub during the prior fiscal year, including recommendations for improvement.(A) The first report shall be due on January 15, following the first fiscal year in which funding is provided to implement any portion of this article.(B) This reporting requirement may be met separately or the information may be included in the annual report required by subdivision (b) of Section 12098.4.(C) The Office of Small Business Advocate CalOSBA shall also post the report to its internet website.(8)(7) Report employee ownership transition related concerns and recommendations to the advocate.12100.34.(a)Upon appropriation by the Legislature, the manager shall establish and administer an Employee Ownership Education and Outreach Grant Program with the purpose of funding education and outreach programs that increase awareness and understanding of employee ownership transitions.(b)Funding will be awarded to nonprofit organizations to develop and implement outreach initiatives and education programs that increase awareness about business transitions to broad-based employee ownership vehicles.(c)The manager shall award grants to qualified nonprofit organizations for the purpose of performing qualified education and outreach services described in subdivision (g), including exactly one grant for the purpose of a marketing campaign as described in paragraph (2) of subdivision (g).(d)Grant awards shall be made for an initial two-year term, beginning July 1, 2023, and ending June 1, 2025. Grantees may apply for renewal or extension of the initial two-year term, subject to approval by CalOSBA and availability of funds, through the 202627 fiscal year.(e)The manager shall award grants to no more than five qualified nonprofit organizations during any two-year term.(f)Indirect costs shall not exceed 15 percent of total expenses of each grant.(g)(1)Qualified education and outreach services shall include the following:(A)Services designed to increase awareness of worker ownership and transitions to broad-based employee ownership vehicles.(B)Services designed primarily to reach a high volume of business owners through direct outreach, or through educational intermediaries, including the following:(i)Capital providers.(ii)Professional service providers.(iii)Business technical assistance providers.(iv)Industry and business associations.(v)Labor unions and worker centers.(vi)Local governmental entities.(C)(i)Development of a statewide coordinated marketing campaign to increase business owner and business service provider awareness of transitions to broad-based employee ownership vehicles and available Employee Ownership Hub resources, including the Employee Ownership Conversion Technical Assistance Grant Program established pursuant to Section 12100.35.(ii)The marketing campaign shall be developed with input from, and made available to, all grantees and the manager, to enhance clear messaging and high-quality marketing in all services provided under the Employee Ownership Hub.(2)Qualified education and outreach services may also include outreach and education by labor unions and worker centers to businesses that may be a good fit for a transition to employee ownership. (3)When delivering qualified education and outreach services, grantees shall include information on all types of broad-based employee ownership vehicles and on the range of governance and management structures that are possible within them, including democratically governed business structures and employee participation in business decisionmaking and governance.(h)(1)To be eligible for a grant under the program, a qualified nonprofit organization shall satisfy all of the following:(A)Demonstrated experience in providing outreach and education about worker ownership and about business transitions to one or more broad-based employee ownership vehicles.(B)Demonstrated experience providing outreach and education services in California.(2)Labor unions and worker centers may also be awarded grants in partnership with a qualified nonprofit organization to support education and outreach to businesses that are at risk of closure or succession.(i)The manager shall prepare an annual report meeting the requirements of paragraph (7) of subdivision (b) of Section 12100.33 that includes the following:(1)Number of businesses reached.(2)Types and number of outreach activities.(3)The information provided through these activities.12100.35.(a)Upon appropriation by the Legislature, the manager shall establish and administer, or contract with a third party or grant partner to administer, an Employee Ownership Technical Assistance Grant Program with the purpose of subsidizing the cost of conversion to employee ownership.(b)The purpose of the grant program is to partially subsidize conversion costs for qualified businesses transitioning to broad-based employee ownership vehicles, making these transitions more accessible to California businesses, ensuring these transitions benefit California workers, and creating wealth building opportunities for Californians.(c)(1)The manager shall preapprove grant applications to qualified service providers, and disburse grant funds upon receipt of invoices or contracts for qualified conversion services rendered to one or more qualified businesses.(2)Grant awards shall not exceed the lesser of 50 percent of the costs of qualified conversion services of a qualified business or fifty thousand dollars ($50,000).(3)Qualified service providers shall provide information about each qualified business receiving qualified conversion services, including the name, primary address, and business entity identifying number on file with the Secretary of State.(d)For purposes of this section, the following definitions shall apply:(1)(A)Qualified business means a business that is considering or undergoing a transition to employee ownership, and that satisfies all of the following:(i)Is headquartered in California.(ii)Has at least 10 employees.(iii)Has been in business for at least 10 years.(B)Notwithstanding subparagraph (A), the manager may make exceptions for businesses with as few as three employees, and for businesses in operation less than 10 years.(2)Qualified conversion services shall include, but not be limited to, the following:(A)Prefeasibility assessments.(B)Feasibility assessments.(C)Accounting services.(D)Legal services.(E)Transition plans.(F)Succession planning services.(G)Training for workers on employee ownership and democratic management and governance.(3)(A)Qualified service provider means a provider of services listed in paragraph (2), that satisfies all of the following:(i)Has at least two years of experience working with businesses considering or undertaking a transition to employee ownership.(ii)In the case of a service provider that is providing feasibility studies, either has demonstrated experience in assessing debt capacity and conducting employee ownership feasibility studies, or is providing feasibility studies in collaboration with another business entity that has such demonstrated experience.(B)A qualified service provider may provide for some or all of the services listed in paragraph (2) through contracts with other business entities.(e)The manager shall prepare an annual report meeting the requirements of paragraph (7) of subdivision (b) of Section 12100.33 that includes the following:(1)Number of businesses served using funds awarded pursuant to this section.(2)Types of services provided.(3)Number of jobs created or saved.12100.36.Nothing in this article prevents or creates an exclusion for employee-owned companies from participating in California capital programs, including, but not limited to, the provision of commercial loans, subordinated debt, and synthetic equity to broad-based employee ownership vehicles, or the use of those programs for the purchase of, or facilitation of the purchase of, broad-based employee ownership vehicles.
The people of the State of California do enact as follows:
## The people of the State of California do enact as follows:
SECTION 1. Article 6.6 (commencing with Section 12100.30) is added to Chapter 1.6 of Part 2 of Division 3 of Title 2 of the Government Code, immediately following Section 12100, to read: Article 6.6. California Employee Ownership Act12100.30. This article shall be known, and may be cited, as the California Employee Ownership Act.12100.31. The Legislature finds and declares all of the following:(a) Californias small businesses continue to contend with the pressures of the aging baby boomer business owners who are at or near retirement and desperately looking for an exit. According to national surveys, 79 percent of business owners want to retire within 10 years, 60 percent in less than 5 years, and 33 percent in less than 3 years. However, only 15 percent of businesses successfully transition to the next generation in the family, and only 20 percent of commercial listings actually sell. Nearly 360,000 California businesses, employing 3.9 million workers, are at risk because their owners are nearing retirement.(b) Rather than closing for good or selling to large, out-of-state buyers, small business owners can find willing buyers in the people who work alongside them every day: their employees. Doing so would anchor essential production and services in communities, protect livelihoods, avert layoffs, and save the state money.(c) Employees becoming owners would create opportunities for wealth-building and community stability. It would also help California create a more inclusive, equitable, and stable economy, supported by the studies of employee-owned businesses and their success and resiliency during the Great Recession and the COVID-19 pandemic.(d) Fairness to employees is critical for the success of employee ownership transactions. Employee ownership should supplement, not supplant, fair wages, health insurance, retirement benefits, and the freedom to join a union. Employee ownership transactions should be structured to provide employees with a fair valuation of their ownership stake with an independent trustee as a best practice for the transaction. Employee ownership transactions through an Employee Stock Ownership Plan (ESOP) should be structured to provide employees with a fair valuation of their ownership stake with an independent trustee as a best practice for the transaction. Professional feasibility assessments are a best practice for transitions to all broad-based employee ownership forms.(e) While the benefits of employee ownership are well documented, many stakeholders in the business and workforce ecosystems are unaware of broad-based employee ownership forms and their benefits, best practices for their implementation, or opportunities for their widespread expansion. In partnership with leaders in the field of employee ownership, the State of California can play a catalytic role in raising awareness of all forms of broad-based employee ownership, increasing access to capital for employee-owned enterprises, encouraging best practices, and ensuring that workers who are most burdened by income and wealth inequality and the racial wealth gap gain access to wealth, quality jobs, and workplace voice through employee ownership. (e)(f) It is the intent of the Legislature to establish a dedicated hub within the Office of Small Business Advocate that will help educate stakeholders about employee ownership, increase awareness and understanding of employee ownership among stakeholders, assist business owners and employees in navigating available resources, provide funding for education, outreach, and technical assistance, and streamline and reduce barriers to employee ownership.12100.32. For purposes of this article, the following definitions shall apply:(a) Advocate means the Small Business Advocate. (b) Broad-based employee ownership vehicle means any of the following:(1) An employee-owned corporation, as that term is defined in subdivision (c) of Section 91502.1.(2) An eligible worker-owned cooperative or an eligible cooperative, as defined in subdivision (e). member-owned organization where the voting interest or stock is held by members, and the governing body is elected by the members on the basis of one vote per member.(3) A business wherein the majority of stock is owned by an employee stock ownership plan. plan, as defined in subdivision (f), or by another trust on behalf of the companys employees.(4) A business wherein the majority of which is owned by a trust that has the purposes of creating employee ownership and of promoting the financial and nonfinancial interests of all employees.(5) A worker cooperative or employment cooperative, as defined in subdivision (k).(6) A member-owned organization that includes workers as members and where the voting interest or stock is held by members, and the majority of the governing body is elected by the members on the basis of one vote per member.(c) California capital programs means state programs offering capital assistance to businesses, including, but not limited to, the Small Business Loan Guarantee Program, the State Small Business Credit Initiative, the California Rebuilding Fund, and the California Capital Access Program.(d) CalOSBA or office means the Office of Small Business Advocate within the Governors Office of Business and Economic Development. (e) Eligible worker-owned cooperative has the same definition as that term is defined in paragraph (2) of subsection (c) of Section 1042 of the Internal Revenue Code, as that provision read on January 1, 2022.(f) Employee stock ownership plan or ESOP has the same definition as that term is defined in paragraph (7) of subsection (e) of Section 4975 of the Internal Revenue Code, as that provision read on January 1, 2022.(g) Employee ownership transition means the process of a business entering a broad-based employee ownership vehicle.(h) Feasibility assessment means a financial assessment of a companys debt capacity and other factors that will determine viable employee-ownership employee ownership transition scenarios.(i) Independent ESOP trustee means an ESOP trustee that is unrelated to the company, its officers, and its shareholders, and is in the business of serving as an ESOP fiduciary. (j) Manager means the Employee Ownership Hub Manager.(k) Worker cooperative or employment cooperative has the same definition as those terms are defined in Section 12253.5 of the Corporations Code.12100.33. (a) Upon appropriation by the Legislature, the Office of Small Business Advocate CalOSBA shall establish the California Employee Ownership Hub, administered by an Employee OwnershipHub Ownership Hub Manager, appointed by the advocate.(b) The manager shall administer the Employee Ownership Hub, and may be responsible for the following duties:(1)Manage the Employee Ownership Education and Outreach Grants Program and the Employee Ownership Conversion Technical Assistance Grant Program. (2)(1) (A)Work with all California state agencies whose regulations and programs affect employee-owned companies, and businesses with the potential to become employee-owned, to enhance opportunities and reduce barriers.(B)For the purpose of developing recommendations to enhance the ability of employee-owned companies to access California capital programs, the recommendations shall only apply to ESOPs that satisfy one of the following conditions:(i)The ESOP has appointed an independent ESOP trustee.(ii)The ESOP has, as a trustee, a person or entity that has completed education on ESOP trustee best practices.(3)(2) Partner with grantee partners, and other relevant private, nonprofit, and public organizations including, but not limited to, professional and trade associations, financial institutions, labor unions, worker centers, Small Business Development Centers, economic and workforce development organizations, and nonprofit entities to promote employee ownership benefits and educate business owners and employees about the benefits of employee ownership and employee ownership transition succession models.(4)(3) Develop and make available Share materials regarding employee ownership benefits and employee ownership transition succession models.(5)(4) Provide a referral service to help business owners, labor unions, workers, and worker centers find appropriate legal, financial, and technical employee ownership resources and services. services to assist in employee ownership transitions and the growth of employee-owned businesses.(6)(5) Work with the California Infrastructure and Economic Development Bank, the California Pollution Control Financing Authority, and related entities to shape and implement guidance on lending to broad-based employee ownership vehicles. develop recommendations and enhance the ability of broad-based employee ownership vehicles to access California capital programs. Those recommendations shall only apply to ESOPs to the extent that the ESOPs satisfy one of the following conditions:(A) The ESOP has appointed an independent ESOP trustee.(B) The ESOP has, as a trustee, a person or entity that has completed education on ESOP trustee best practices.(7)(6) Report to the Legislature, in accordance with Section 9795, on activities undertaken pursuant to this article by the hub during the prior fiscal year, including recommendations for improvement.(A) The first report shall be due on January 15, following the first fiscal year in which funding is provided to implement any portion of this article.(B) This reporting requirement may be met separately or the information may be included in the annual report required by subdivision (b) of Section 12098.4.(C) The Office of Small Business Advocate CalOSBA shall also post the report to its internet website.(8)(7) Report employee ownership transition related concerns and recommendations to the advocate.12100.34.(a)Upon appropriation by the Legislature, the manager shall establish and administer an Employee Ownership Education and Outreach Grant Program with the purpose of funding education and outreach programs that increase awareness and understanding of employee ownership transitions.(b)Funding will be awarded to nonprofit organizations to develop and implement outreach initiatives and education programs that increase awareness about business transitions to broad-based employee ownership vehicles.(c)The manager shall award grants to qualified nonprofit organizations for the purpose of performing qualified education and outreach services described in subdivision (g), including exactly one grant for the purpose of a marketing campaign as described in paragraph (2) of subdivision (g).(d)Grant awards shall be made for an initial two-year term, beginning July 1, 2023, and ending June 1, 2025. Grantees may apply for renewal or extension of the initial two-year term, subject to approval by CalOSBA and availability of funds, through the 202627 fiscal year.(e)The manager shall award grants to no more than five qualified nonprofit organizations during any two-year term.(f)Indirect costs shall not exceed 15 percent of total expenses of each grant.(g)(1)Qualified education and outreach services shall include the following:(A)Services designed to increase awareness of worker ownership and transitions to broad-based employee ownership vehicles.(B)Services designed primarily to reach a high volume of business owners through direct outreach, or through educational intermediaries, including the following:(i)Capital providers.(ii)Professional service providers.(iii)Business technical assistance providers.(iv)Industry and business associations.(v)Labor unions and worker centers.(vi)Local governmental entities.(C)(i)Development of a statewide coordinated marketing campaign to increase business owner and business service provider awareness of transitions to broad-based employee ownership vehicles and available Employee Ownership Hub resources, including the Employee Ownership Conversion Technical Assistance Grant Program established pursuant to Section 12100.35.(ii)The marketing campaign shall be developed with input from, and made available to, all grantees and the manager, to enhance clear messaging and high-quality marketing in all services provided under the Employee Ownership Hub.(2)Qualified education and outreach services may also include outreach and education by labor unions and worker centers to businesses that may be a good fit for a transition to employee ownership. (3)When delivering qualified education and outreach services, grantees shall include information on all types of broad-based employee ownership vehicles and on the range of governance and management structures that are possible within them, including democratically governed business structures and employee participation in business decisionmaking and governance.(h)(1)To be eligible for a grant under the program, a qualified nonprofit organization shall satisfy all of the following:(A)Demonstrated experience in providing outreach and education about worker ownership and about business transitions to one or more broad-based employee ownership vehicles.(B)Demonstrated experience providing outreach and education services in California.(2)Labor unions and worker centers may also be awarded grants in partnership with a qualified nonprofit organization to support education and outreach to businesses that are at risk of closure or succession.(i)The manager shall prepare an annual report meeting the requirements of paragraph (7) of subdivision (b) of Section 12100.33 that includes the following:(1)Number of businesses reached.(2)Types and number of outreach activities.(3)The information provided through these activities.12100.35.(a)Upon appropriation by the Legislature, the manager shall establish and administer, or contract with a third party or grant partner to administer, an Employee Ownership Technical Assistance Grant Program with the purpose of subsidizing the cost of conversion to employee ownership.(b)The purpose of the grant program is to partially subsidize conversion costs for qualified businesses transitioning to broad-based employee ownership vehicles, making these transitions more accessible to California businesses, ensuring these transitions benefit California workers, and creating wealth building opportunities for Californians.(c)(1)The manager shall preapprove grant applications to qualified service providers, and disburse grant funds upon receipt of invoices or contracts for qualified conversion services rendered to one or more qualified businesses.(2)Grant awards shall not exceed the lesser of 50 percent of the costs of qualified conversion services of a qualified business or fifty thousand dollars ($50,000).(3)Qualified service providers shall provide information about each qualified business receiving qualified conversion services, including the name, primary address, and business entity identifying number on file with the Secretary of State.(d)For purposes of this section, the following definitions shall apply:(1)(A)Qualified business means a business that is considering or undergoing a transition to employee ownership, and that satisfies all of the following:(i)Is headquartered in California.(ii)Has at least 10 employees.(iii)Has been in business for at least 10 years.(B)Notwithstanding subparagraph (A), the manager may make exceptions for businesses with as few as three employees, and for businesses in operation less than 10 years.(2)Qualified conversion services shall include, but not be limited to, the following:(A)Prefeasibility assessments.(B)Feasibility assessments.(C)Accounting services.(D)Legal services.(E)Transition plans.(F)Succession planning services.(G)Training for workers on employee ownership and democratic management and governance.(3)(A)Qualified service provider means a provider of services listed in paragraph (2), that satisfies all of the following:(i)Has at least two years of experience working with businesses considering or undertaking a transition to employee ownership.(ii)In the case of a service provider that is providing feasibility studies, either has demonstrated experience in assessing debt capacity and conducting employee ownership feasibility studies, or is providing feasibility studies in collaboration with another business entity that has such demonstrated experience.(B)A qualified service provider may provide for some or all of the services listed in paragraph (2) through contracts with other business entities.(e)The manager shall prepare an annual report meeting the requirements of paragraph (7) of subdivision (b) of Section 12100.33 that includes the following:(1)Number of businesses served using funds awarded pursuant to this section.(2)Types of services provided.(3)Number of jobs created or saved.12100.36.Nothing in this article prevents or creates an exclusion for employee-owned companies from participating in California capital programs, including, but not limited to, the provision of commercial loans, subordinated debt, and synthetic equity to broad-based employee ownership vehicles, or the use of those programs for the purchase of, or facilitation of the purchase of, broad-based employee ownership vehicles.
SECTION 1. Article 6.6 (commencing with Section 12100.30) is added to Chapter 1.6 of Part 2 of Division 3 of Title 2 of the Government Code, immediately following Section 12100, to read:
### SECTION 1.
Article 6.6. California Employee Ownership Act12100.30. This article shall be known, and may be cited, as the California Employee Ownership Act.12100.31. The Legislature finds and declares all of the following:(a) Californias small businesses continue to contend with the pressures of the aging baby boomer business owners who are at or near retirement and desperately looking for an exit. According to national surveys, 79 percent of business owners want to retire within 10 years, 60 percent in less than 5 years, and 33 percent in less than 3 years. However, only 15 percent of businesses successfully transition to the next generation in the family, and only 20 percent of commercial listings actually sell. Nearly 360,000 California businesses, employing 3.9 million workers, are at risk because their owners are nearing retirement.(b) Rather than closing for good or selling to large, out-of-state buyers, small business owners can find willing buyers in the people who work alongside them every day: their employees. Doing so would anchor essential production and services in communities, protect livelihoods, avert layoffs, and save the state money.(c) Employees becoming owners would create opportunities for wealth-building and community stability. It would also help California create a more inclusive, equitable, and stable economy, supported by the studies of employee-owned businesses and their success and resiliency during the Great Recession and the COVID-19 pandemic.(d) Fairness to employees is critical for the success of employee ownership transactions. Employee ownership should supplement, not supplant, fair wages, health insurance, retirement benefits, and the freedom to join a union. Employee ownership transactions should be structured to provide employees with a fair valuation of their ownership stake with an independent trustee as a best practice for the transaction. Employee ownership transactions through an Employee Stock Ownership Plan (ESOP) should be structured to provide employees with a fair valuation of their ownership stake with an independent trustee as a best practice for the transaction. Professional feasibility assessments are a best practice for transitions to all broad-based employee ownership forms.(e) While the benefits of employee ownership are well documented, many stakeholders in the business and workforce ecosystems are unaware of broad-based employee ownership forms and their benefits, best practices for their implementation, or opportunities for their widespread expansion. In partnership with leaders in the field of employee ownership, the State of California can play a catalytic role in raising awareness of all forms of broad-based employee ownership, increasing access to capital for employee-owned enterprises, encouraging best practices, and ensuring that workers who are most burdened by income and wealth inequality and the racial wealth gap gain access to wealth, quality jobs, and workplace voice through employee ownership. (e)(f) It is the intent of the Legislature to establish a dedicated hub within the Office of Small Business Advocate that will help educate stakeholders about employee ownership, increase awareness and understanding of employee ownership among stakeholders, assist business owners and employees in navigating available resources, provide funding for education, outreach, and technical assistance, and streamline and reduce barriers to employee ownership.12100.32. For purposes of this article, the following definitions shall apply:(a) Advocate means the Small Business Advocate. (b) Broad-based employee ownership vehicle means any of the following:(1) An employee-owned corporation, as that term is defined in subdivision (c) of Section 91502.1.(2) An eligible worker-owned cooperative or an eligible cooperative, as defined in subdivision (e). member-owned organization where the voting interest or stock is held by members, and the governing body is elected by the members on the basis of one vote per member.(3) A business wherein the majority of stock is owned by an employee stock ownership plan. plan, as defined in subdivision (f), or by another trust on behalf of the companys employees.(4) A business wherein the majority of which is owned by a trust that has the purposes of creating employee ownership and of promoting the financial and nonfinancial interests of all employees.(5) A worker cooperative or employment cooperative, as defined in subdivision (k).(6) A member-owned organization that includes workers as members and where the voting interest or stock is held by members, and the majority of the governing body is elected by the members on the basis of one vote per member.(c) California capital programs means state programs offering capital assistance to businesses, including, but not limited to, the Small Business Loan Guarantee Program, the State Small Business Credit Initiative, the California Rebuilding Fund, and the California Capital Access Program.(d) CalOSBA or office means the Office of Small Business Advocate within the Governors Office of Business and Economic Development. (e) Eligible worker-owned cooperative has the same definition as that term is defined in paragraph (2) of subsection (c) of Section 1042 of the Internal Revenue Code, as that provision read on January 1, 2022.(f) Employee stock ownership plan or ESOP has the same definition as that term is defined in paragraph (7) of subsection (e) of Section 4975 of the Internal Revenue Code, as that provision read on January 1, 2022.(g) Employee ownership transition means the process of a business entering a broad-based employee ownership vehicle.(h) Feasibility assessment means a financial assessment of a companys debt capacity and other factors that will determine viable employee-ownership employee ownership transition scenarios.(i) Independent ESOP trustee means an ESOP trustee that is unrelated to the company, its officers, and its shareholders, and is in the business of serving as an ESOP fiduciary. (j) Manager means the Employee Ownership Hub Manager.(k) Worker cooperative or employment cooperative has the same definition as those terms are defined in Section 12253.5 of the Corporations Code.12100.33. (a) Upon appropriation by the Legislature, the Office of Small Business Advocate CalOSBA shall establish the California Employee Ownership Hub, administered by an Employee OwnershipHub Ownership Hub Manager, appointed by the advocate.(b) The manager shall administer the Employee Ownership Hub, and may be responsible for the following duties:(1)Manage the Employee Ownership Education and Outreach Grants Program and the Employee Ownership Conversion Technical Assistance Grant Program. (2)(1) (A)Work with all California state agencies whose regulations and programs affect employee-owned companies, and businesses with the potential to become employee-owned, to enhance opportunities and reduce barriers.(B)For the purpose of developing recommendations to enhance the ability of employee-owned companies to access California capital programs, the recommendations shall only apply to ESOPs that satisfy one of the following conditions:(i)The ESOP has appointed an independent ESOP trustee.(ii)The ESOP has, as a trustee, a person or entity that has completed education on ESOP trustee best practices.(3)(2) Partner with grantee partners, and other relevant private, nonprofit, and public organizations including, but not limited to, professional and trade associations, financial institutions, labor unions, worker centers, Small Business Development Centers, economic and workforce development organizations, and nonprofit entities to promote employee ownership benefits and educate business owners and employees about the benefits of employee ownership and employee ownership transition succession models.(4)(3) Develop and make available Share materials regarding employee ownership benefits and employee ownership transition succession models.(5)(4) Provide a referral service to help business owners, labor unions, workers, and worker centers find appropriate legal, financial, and technical employee ownership resources and services. services to assist in employee ownership transitions and the growth of employee-owned businesses.(6)(5) Work with the California Infrastructure and Economic Development Bank, the California Pollution Control Financing Authority, and related entities to shape and implement guidance on lending to broad-based employee ownership vehicles. develop recommendations and enhance the ability of broad-based employee ownership vehicles to access California capital programs. Those recommendations shall only apply to ESOPs to the extent that the ESOPs satisfy one of the following conditions:(A) The ESOP has appointed an independent ESOP trustee.(B) The ESOP has, as a trustee, a person or entity that has completed education on ESOP trustee best practices.(7)(6) Report to the Legislature, in accordance with Section 9795, on activities undertaken pursuant to this article by the hub during the prior fiscal year, including recommendations for improvement.(A) The first report shall be due on January 15, following the first fiscal year in which funding is provided to implement any portion of this article.(B) This reporting requirement may be met separately or the information may be included in the annual report required by subdivision (b) of Section 12098.4.(C) The Office of Small Business Advocate CalOSBA shall also post the report to its internet website.(8)(7) Report employee ownership transition related concerns and recommendations to the advocate.12100.34.(a)Upon appropriation by the Legislature, the manager shall establish and administer an Employee Ownership Education and Outreach Grant Program with the purpose of funding education and outreach programs that increase awareness and understanding of employee ownership transitions.(b)Funding will be awarded to nonprofit organizations to develop and implement outreach initiatives and education programs that increase awareness about business transitions to broad-based employee ownership vehicles.(c)The manager shall award grants to qualified nonprofit organizations for the purpose of performing qualified education and outreach services described in subdivision (g), including exactly one grant for the purpose of a marketing campaign as described in paragraph (2) of subdivision (g).(d)Grant awards shall be made for an initial two-year term, beginning July 1, 2023, and ending June 1, 2025. Grantees may apply for renewal or extension of the initial two-year term, subject to approval by CalOSBA and availability of funds, through the 202627 fiscal year.(e)The manager shall award grants to no more than five qualified nonprofit organizations during any two-year term.(f)Indirect costs shall not exceed 15 percent of total expenses of each grant.(g)(1)Qualified education and outreach services shall include the following:(A)Services designed to increase awareness of worker ownership and transitions to broad-based employee ownership vehicles.(B)Services designed primarily to reach a high volume of business owners through direct outreach, or through educational intermediaries, including the following:(i)Capital providers.(ii)Professional service providers.(iii)Business technical assistance providers.(iv)Industry and business associations.(v)Labor unions and worker centers.(vi)Local governmental entities.(C)(i)Development of a statewide coordinated marketing campaign to increase business owner and business service provider awareness of transitions to broad-based employee ownership vehicles and available Employee Ownership Hub resources, including the Employee Ownership Conversion Technical Assistance Grant Program established pursuant to Section 12100.35.(ii)The marketing campaign shall be developed with input from, and made available to, all grantees and the manager, to enhance clear messaging and high-quality marketing in all services provided under the Employee Ownership Hub.(2)Qualified education and outreach services may also include outreach and education by labor unions and worker centers to businesses that may be a good fit for a transition to employee ownership. (3)When delivering qualified education and outreach services, grantees shall include information on all types of broad-based employee ownership vehicles and on the range of governance and management structures that are possible within them, including democratically governed business structures and employee participation in business decisionmaking and governance.(h)(1)To be eligible for a grant under the program, a qualified nonprofit organization shall satisfy all of the following:(A)Demonstrated experience in providing outreach and education about worker ownership and about business transitions to one or more broad-based employee ownership vehicles.(B)Demonstrated experience providing outreach and education services in California.(2)Labor unions and worker centers may also be awarded grants in partnership with a qualified nonprofit organization to support education and outreach to businesses that are at risk of closure or succession.(i)The manager shall prepare an annual report meeting the requirements of paragraph (7) of subdivision (b) of Section 12100.33 that includes the following:(1)Number of businesses reached.(2)Types and number of outreach activities.(3)The information provided through these activities.12100.35.(a)Upon appropriation by the Legislature, the manager shall establish and administer, or contract with a third party or grant partner to administer, an Employee Ownership Technical Assistance Grant Program with the purpose of subsidizing the cost of conversion to employee ownership.(b)The purpose of the grant program is to partially subsidize conversion costs for qualified businesses transitioning to broad-based employee ownership vehicles, making these transitions more accessible to California businesses, ensuring these transitions benefit California workers, and creating wealth building opportunities for Californians.(c)(1)The manager shall preapprove grant applications to qualified service providers, and disburse grant funds upon receipt of invoices or contracts for qualified conversion services rendered to one or more qualified businesses.(2)Grant awards shall not exceed the lesser of 50 percent of the costs of qualified conversion services of a qualified business or fifty thousand dollars ($50,000).(3)Qualified service providers shall provide information about each qualified business receiving qualified conversion services, including the name, primary address, and business entity identifying number on file with the Secretary of State.(d)For purposes of this section, the following definitions shall apply:(1)(A)Qualified business means a business that is considering or undergoing a transition to employee ownership, and that satisfies all of the following:(i)Is headquartered in California.(ii)Has at least 10 employees.(iii)Has been in business for at least 10 years.(B)Notwithstanding subparagraph (A), the manager may make exceptions for businesses with as few as three employees, and for businesses in operation less than 10 years.(2)Qualified conversion services shall include, but not be limited to, the following:(A)Prefeasibility assessments.(B)Feasibility assessments.(C)Accounting services.(D)Legal services.(E)Transition plans.(F)Succession planning services.(G)Training for workers on employee ownership and democratic management and governance.(3)(A)Qualified service provider means a provider of services listed in paragraph (2), that satisfies all of the following:(i)Has at least two years of experience working with businesses considering or undertaking a transition to employee ownership.(ii)In the case of a service provider that is providing feasibility studies, either has demonstrated experience in assessing debt capacity and conducting employee ownership feasibility studies, or is providing feasibility studies in collaboration with another business entity that has such demonstrated experience.(B)A qualified service provider may provide for some or all of the services listed in paragraph (2) through contracts with other business entities.(e)The manager shall prepare an annual report meeting the requirements of paragraph (7) of subdivision (b) of Section 12100.33 that includes the following:(1)Number of businesses served using funds awarded pursuant to this section.(2)Types of services provided.(3)Number of jobs created or saved.12100.36.Nothing in this article prevents or creates an exclusion for employee-owned companies from participating in California capital programs, including, but not limited to, the provision of commercial loans, subordinated debt, and synthetic equity to broad-based employee ownership vehicles, or the use of those programs for the purchase of, or facilitation of the purchase of, broad-based employee ownership vehicles.
Article 6.6. California Employee Ownership Act12100.30. This article shall be known, and may be cited, as the California Employee Ownership Act.12100.31. The Legislature finds and declares all of the following:(a) Californias small businesses continue to contend with the pressures of the aging baby boomer business owners who are at or near retirement and desperately looking for an exit. According to national surveys, 79 percent of business owners want to retire within 10 years, 60 percent in less than 5 years, and 33 percent in less than 3 years. However, only 15 percent of businesses successfully transition to the next generation in the family, and only 20 percent of commercial listings actually sell. Nearly 360,000 California businesses, employing 3.9 million workers, are at risk because their owners are nearing retirement.(b) Rather than closing for good or selling to large, out-of-state buyers, small business owners can find willing buyers in the people who work alongside them every day: their employees. Doing so would anchor essential production and services in communities, protect livelihoods, avert layoffs, and save the state money.(c) Employees becoming owners would create opportunities for wealth-building and community stability. It would also help California create a more inclusive, equitable, and stable economy, supported by the studies of employee-owned businesses and their success and resiliency during the Great Recession and the COVID-19 pandemic.(d) Fairness to employees is critical for the success of employee ownership transactions. Employee ownership should supplement, not supplant, fair wages, health insurance, retirement benefits, and the freedom to join a union. Employee ownership transactions should be structured to provide employees with a fair valuation of their ownership stake with an independent trustee as a best practice for the transaction. Employee ownership transactions through an Employee Stock Ownership Plan (ESOP) should be structured to provide employees with a fair valuation of their ownership stake with an independent trustee as a best practice for the transaction. Professional feasibility assessments are a best practice for transitions to all broad-based employee ownership forms.(e) While the benefits of employee ownership are well documented, many stakeholders in the business and workforce ecosystems are unaware of broad-based employee ownership forms and their benefits, best practices for their implementation, or opportunities for their widespread expansion. In partnership with leaders in the field of employee ownership, the State of California can play a catalytic role in raising awareness of all forms of broad-based employee ownership, increasing access to capital for employee-owned enterprises, encouraging best practices, and ensuring that workers who are most burdened by income and wealth inequality and the racial wealth gap gain access to wealth, quality jobs, and workplace voice through employee ownership. (e)(f) It is the intent of the Legislature to establish a dedicated hub within the Office of Small Business Advocate that will help educate stakeholders about employee ownership, increase awareness and understanding of employee ownership among stakeholders, assist business owners and employees in navigating available resources, provide funding for education, outreach, and technical assistance, and streamline and reduce barriers to employee ownership.12100.32. For purposes of this article, the following definitions shall apply:(a) Advocate means the Small Business Advocate. (b) Broad-based employee ownership vehicle means any of the following:(1) An employee-owned corporation, as that term is defined in subdivision (c) of Section 91502.1.(2) An eligible worker-owned cooperative or an eligible cooperative, as defined in subdivision (e). member-owned organization where the voting interest or stock is held by members, and the governing body is elected by the members on the basis of one vote per member.(3) A business wherein the majority of stock is owned by an employee stock ownership plan. plan, as defined in subdivision (f), or by another trust on behalf of the companys employees.(4) A business wherein the majority of which is owned by a trust that has the purposes of creating employee ownership and of promoting the financial and nonfinancial interests of all employees.(5) A worker cooperative or employment cooperative, as defined in subdivision (k).(6) A member-owned organization that includes workers as members and where the voting interest or stock is held by members, and the majority of the governing body is elected by the members on the basis of one vote per member.(c) California capital programs means state programs offering capital assistance to businesses, including, but not limited to, the Small Business Loan Guarantee Program, the State Small Business Credit Initiative, the California Rebuilding Fund, and the California Capital Access Program.(d) CalOSBA or office means the Office of Small Business Advocate within the Governors Office of Business and Economic Development. (e) Eligible worker-owned cooperative has the same definition as that term is defined in paragraph (2) of subsection (c) of Section 1042 of the Internal Revenue Code, as that provision read on January 1, 2022.(f) Employee stock ownership plan or ESOP has the same definition as that term is defined in paragraph (7) of subsection (e) of Section 4975 of the Internal Revenue Code, as that provision read on January 1, 2022.(g) Employee ownership transition means the process of a business entering a broad-based employee ownership vehicle.(h) Feasibility assessment means a financial assessment of a companys debt capacity and other factors that will determine viable employee-ownership employee ownership transition scenarios.(i) Independent ESOP trustee means an ESOP trustee that is unrelated to the company, its officers, and its shareholders, and is in the business of serving as an ESOP fiduciary. (j) Manager means the Employee Ownership Hub Manager.(k) Worker cooperative or employment cooperative has the same definition as those terms are defined in Section 12253.5 of the Corporations Code.12100.33. (a) Upon appropriation by the Legislature, the Office of Small Business Advocate CalOSBA shall establish the California Employee Ownership Hub, administered by an Employee OwnershipHub Ownership Hub Manager, appointed by the advocate.(b) The manager shall administer the Employee Ownership Hub, and may be responsible for the following duties:(1)Manage the Employee Ownership Education and Outreach Grants Program and the Employee Ownership Conversion Technical Assistance Grant Program. (2)(1) (A)Work with all California state agencies whose regulations and programs affect employee-owned companies, and businesses with the potential to become employee-owned, to enhance opportunities and reduce barriers.(B)For the purpose of developing recommendations to enhance the ability of employee-owned companies to access California capital programs, the recommendations shall only apply to ESOPs that satisfy one of the following conditions:(i)The ESOP has appointed an independent ESOP trustee.(ii)The ESOP has, as a trustee, a person or entity that has completed education on ESOP trustee best practices.(3)(2) Partner with grantee partners, and other relevant private, nonprofit, and public organizations including, but not limited to, professional and trade associations, financial institutions, labor unions, worker centers, Small Business Development Centers, economic and workforce development organizations, and nonprofit entities to promote employee ownership benefits and educate business owners and employees about the benefits of employee ownership and employee ownership transition succession models.(4)(3) Develop and make available Share materials regarding employee ownership benefits and employee ownership transition succession models.(5)(4) Provide a referral service to help business owners, labor unions, workers, and worker centers find appropriate legal, financial, and technical employee ownership resources and services. services to assist in employee ownership transitions and the growth of employee-owned businesses.(6)(5) Work with the California Infrastructure and Economic Development Bank, the California Pollution Control Financing Authority, and related entities to shape and implement guidance on lending to broad-based employee ownership vehicles. develop recommendations and enhance the ability of broad-based employee ownership vehicles to access California capital programs. Those recommendations shall only apply to ESOPs to the extent that the ESOPs satisfy one of the following conditions:(A) The ESOP has appointed an independent ESOP trustee.(B) The ESOP has, as a trustee, a person or entity that has completed education on ESOP trustee best practices.(7)(6) Report to the Legislature, in accordance with Section 9795, on activities undertaken pursuant to this article by the hub during the prior fiscal year, including recommendations for improvement.(A) The first report shall be due on January 15, following the first fiscal year in which funding is provided to implement any portion of this article.(B) This reporting requirement may be met separately or the information may be included in the annual report required by subdivision (b) of Section 12098.4.(C) The Office of Small Business Advocate CalOSBA shall also post the report to its internet website.(8)(7) Report employee ownership transition related concerns and recommendations to the advocate.12100.34.(a)Upon appropriation by the Legislature, the manager shall establish and administer an Employee Ownership Education and Outreach Grant Program with the purpose of funding education and outreach programs that increase awareness and understanding of employee ownership transitions.(b)Funding will be awarded to nonprofit organizations to develop and implement outreach initiatives and education programs that increase awareness about business transitions to broad-based employee ownership vehicles.(c)The manager shall award grants to qualified nonprofit organizations for the purpose of performing qualified education and outreach services described in subdivision (g), including exactly one grant for the purpose of a marketing campaign as described in paragraph (2) of subdivision (g).(d)Grant awards shall be made for an initial two-year term, beginning July 1, 2023, and ending June 1, 2025. Grantees may apply for renewal or extension of the initial two-year term, subject to approval by CalOSBA and availability of funds, through the 202627 fiscal year.(e)The manager shall award grants to no more than five qualified nonprofit organizations during any two-year term.(f)Indirect costs shall not exceed 15 percent of total expenses of each grant.(g)(1)Qualified education and outreach services shall include the following:(A)Services designed to increase awareness of worker ownership and transitions to broad-based employee ownership vehicles.(B)Services designed primarily to reach a high volume of business owners through direct outreach, or through educational intermediaries, including the following:(i)Capital providers.(ii)Professional service providers.(iii)Business technical assistance providers.(iv)Industry and business associations.(v)Labor unions and worker centers.(vi)Local governmental entities.(C)(i)Development of a statewide coordinated marketing campaign to increase business owner and business service provider awareness of transitions to broad-based employee ownership vehicles and available Employee Ownership Hub resources, including the Employee Ownership Conversion Technical Assistance Grant Program established pursuant to Section 12100.35.(ii)The marketing campaign shall be developed with input from, and made available to, all grantees and the manager, to enhance clear messaging and high-quality marketing in all services provided under the Employee Ownership Hub.(2)Qualified education and outreach services may also include outreach and education by labor unions and worker centers to businesses that may be a good fit for a transition to employee ownership. (3)When delivering qualified education and outreach services, grantees shall include information on all types of broad-based employee ownership vehicles and on the range of governance and management structures that are possible within them, including democratically governed business structures and employee participation in business decisionmaking and governance.(h)(1)To be eligible for a grant under the program, a qualified nonprofit organization shall satisfy all of the following:(A)Demonstrated experience in providing outreach and education about worker ownership and about business transitions to one or more broad-based employee ownership vehicles.(B)Demonstrated experience providing outreach and education services in California.(2)Labor unions and worker centers may also be awarded grants in partnership with a qualified nonprofit organization to support education and outreach to businesses that are at risk of closure or succession.(i)The manager shall prepare an annual report meeting the requirements of paragraph (7) of subdivision (b) of Section 12100.33 that includes the following:(1)Number of businesses reached.(2)Types and number of outreach activities.(3)The information provided through these activities.12100.35.(a)Upon appropriation by the Legislature, the manager shall establish and administer, or contract with a third party or grant partner to administer, an Employee Ownership Technical Assistance Grant Program with the purpose of subsidizing the cost of conversion to employee ownership.(b)The purpose of the grant program is to partially subsidize conversion costs for qualified businesses transitioning to broad-based employee ownership vehicles, making these transitions more accessible to California businesses, ensuring these transitions benefit California workers, and creating wealth building opportunities for Californians.(c)(1)The manager shall preapprove grant applications to qualified service providers, and disburse grant funds upon receipt of invoices or contracts for qualified conversion services rendered to one or more qualified businesses.(2)Grant awards shall not exceed the lesser of 50 percent of the costs of qualified conversion services of a qualified business or fifty thousand dollars ($50,000).(3)Qualified service providers shall provide information about each qualified business receiving qualified conversion services, including the name, primary address, and business entity identifying number on file with the Secretary of State.(d)For purposes of this section, the following definitions shall apply:(1)(A)Qualified business means a business that is considering or undergoing a transition to employee ownership, and that satisfies all of the following:(i)Is headquartered in California.(ii)Has at least 10 employees.(iii)Has been in business for at least 10 years.(B)Notwithstanding subparagraph (A), the manager may make exceptions for businesses with as few as three employees, and for businesses in operation less than 10 years.(2)Qualified conversion services shall include, but not be limited to, the following:(A)Prefeasibility assessments.(B)Feasibility assessments.(C)Accounting services.(D)Legal services.(E)Transition plans.(F)Succession planning services.(G)Training for workers on employee ownership and democratic management and governance.(3)(A)Qualified service provider means a provider of services listed in paragraph (2), that satisfies all of the following:(i)Has at least two years of experience working with businesses considering or undertaking a transition to employee ownership.(ii)In the case of a service provider that is providing feasibility studies, either has demonstrated experience in assessing debt capacity and conducting employee ownership feasibility studies, or is providing feasibility studies in collaboration with another business entity that has such demonstrated experience.(B)A qualified service provider may provide for some or all of the services listed in paragraph (2) through contracts with other business entities.(e)The manager shall prepare an annual report meeting the requirements of paragraph (7) of subdivision (b) of Section 12100.33 that includes the following:(1)Number of businesses served using funds awarded pursuant to this section.(2)Types of services provided.(3)Number of jobs created or saved.12100.36.Nothing in this article prevents or creates an exclusion for employee-owned companies from participating in California capital programs, including, but not limited to, the provision of commercial loans, subordinated debt, and synthetic equity to broad-based employee ownership vehicles, or the use of those programs for the purchase of, or facilitation of the purchase of, broad-based employee ownership vehicles.
Article 6.6. California Employee Ownership Act
Article 6.6. California Employee Ownership Act
12100.30. This article shall be known, and may be cited, as the California Employee Ownership Act.
12100.30. This article shall be known, and may be cited, as the California Employee Ownership Act.
12100.31. The Legislature finds and declares all of the following:(a) Californias small businesses continue to contend with the pressures of the aging baby boomer business owners who are at or near retirement and desperately looking for an exit. According to national surveys, 79 percent of business owners want to retire within 10 years, 60 percent in less than 5 years, and 33 percent in less than 3 years. However, only 15 percent of businesses successfully transition to the next generation in the family, and only 20 percent of commercial listings actually sell. Nearly 360,000 California businesses, employing 3.9 million workers, are at risk because their owners are nearing retirement.(b) Rather than closing for good or selling to large, out-of-state buyers, small business owners can find willing buyers in the people who work alongside them every day: their employees. Doing so would anchor essential production and services in communities, protect livelihoods, avert layoffs, and save the state money.(c) Employees becoming owners would create opportunities for wealth-building and community stability. It would also help California create a more inclusive, equitable, and stable economy, supported by the studies of employee-owned businesses and their success and resiliency during the Great Recession and the COVID-19 pandemic.(d) Fairness to employees is critical for the success of employee ownership transactions. Employee ownership should supplement, not supplant, fair wages, health insurance, retirement benefits, and the freedom to join a union. Employee ownership transactions should be structured to provide employees with a fair valuation of their ownership stake with an independent trustee as a best practice for the transaction. Employee ownership transactions through an Employee Stock Ownership Plan (ESOP) should be structured to provide employees with a fair valuation of their ownership stake with an independent trustee as a best practice for the transaction. Professional feasibility assessments are a best practice for transitions to all broad-based employee ownership forms.(e) While the benefits of employee ownership are well documented, many stakeholders in the business and workforce ecosystems are unaware of broad-based employee ownership forms and their benefits, best practices for their implementation, or opportunities for their widespread expansion. In partnership with leaders in the field of employee ownership, the State of California can play a catalytic role in raising awareness of all forms of broad-based employee ownership, increasing access to capital for employee-owned enterprises, encouraging best practices, and ensuring that workers who are most burdened by income and wealth inequality and the racial wealth gap gain access to wealth, quality jobs, and workplace voice through employee ownership. (e)(f) It is the intent of the Legislature to establish a dedicated hub within the Office of Small Business Advocate that will help educate stakeholders about employee ownership, increase awareness and understanding of employee ownership among stakeholders, assist business owners and employees in navigating available resources, provide funding for education, outreach, and technical assistance, and streamline and reduce barriers to employee ownership.
12100.31. The Legislature finds and declares all of the following:
(a) Californias small businesses continue to contend with the pressures of the aging baby boomer business owners who are at or near retirement and desperately looking for an exit. According to national surveys, 79 percent of business owners want to retire within 10 years, 60 percent in less than 5 years, and 33 percent in less than 3 years. However, only 15 percent of businesses successfully transition to the next generation in the family, and only 20 percent of commercial listings actually sell. Nearly 360,000 California businesses, employing 3.9 million workers, are at risk because their owners are nearing retirement.
(b) Rather than closing for good or selling to large, out-of-state buyers, small business owners can find willing buyers in the people who work alongside them every day: their employees. Doing so would anchor essential production and services in communities, protect livelihoods, avert layoffs, and save the state money.
(c) Employees becoming owners would create opportunities for wealth-building and community stability. It would also help California create a more inclusive, equitable, and stable economy, supported by the studies of employee-owned businesses and their success and resiliency during the Great Recession and the COVID-19 pandemic.
(d) Fairness to employees is critical for the success of employee ownership transactions. Employee ownership should supplement, not supplant, fair wages, health insurance, retirement benefits, and the freedom to join a union. Employee ownership transactions should be structured to provide employees with a fair valuation of their ownership stake with an independent trustee as a best practice for the transaction. Employee ownership transactions through an Employee Stock Ownership Plan (ESOP) should be structured to provide employees with a fair valuation of their ownership stake with an independent trustee as a best practice for the transaction. Professional feasibility assessments are a best practice for transitions to all broad-based employee ownership forms.
(e) While the benefits of employee ownership are well documented, many stakeholders in the business and workforce ecosystems are unaware of broad-based employee ownership forms and their benefits, best practices for their implementation, or opportunities for their widespread expansion. In partnership with leaders in the field of employee ownership, the State of California can play a catalytic role in raising awareness of all forms of broad-based employee ownership, increasing access to capital for employee-owned enterprises, encouraging best practices, and ensuring that workers who are most burdened by income and wealth inequality and the racial wealth gap gain access to wealth, quality jobs, and workplace voice through employee ownership.
(e)
(f) It is the intent of the Legislature to establish a dedicated hub within the Office of Small Business Advocate that will help educate stakeholders about employee ownership, increase awareness and understanding of employee ownership among stakeholders, assist business owners and employees in navigating available resources, provide funding for education, outreach, and technical assistance, and streamline and reduce barriers to employee ownership.
12100.32. For purposes of this article, the following definitions shall apply:(a) Advocate means the Small Business Advocate. (b) Broad-based employee ownership vehicle means any of the following:(1) An employee-owned corporation, as that term is defined in subdivision (c) of Section 91502.1.(2) An eligible worker-owned cooperative or an eligible cooperative, as defined in subdivision (e). member-owned organization where the voting interest or stock is held by members, and the governing body is elected by the members on the basis of one vote per member.(3) A business wherein the majority of stock is owned by an employee stock ownership plan. plan, as defined in subdivision (f), or by another trust on behalf of the companys employees.(4) A business wherein the majority of which is owned by a trust that has the purposes of creating employee ownership and of promoting the financial and nonfinancial interests of all employees.(5) A worker cooperative or employment cooperative, as defined in subdivision (k).(6) A member-owned organization that includes workers as members and where the voting interest or stock is held by members, and the majority of the governing body is elected by the members on the basis of one vote per member.(c) California capital programs means state programs offering capital assistance to businesses, including, but not limited to, the Small Business Loan Guarantee Program, the State Small Business Credit Initiative, the California Rebuilding Fund, and the California Capital Access Program.(d) CalOSBA or office means the Office of Small Business Advocate within the Governors Office of Business and Economic Development. (e) Eligible worker-owned cooperative has the same definition as that term is defined in paragraph (2) of subsection (c) of Section 1042 of the Internal Revenue Code, as that provision read on January 1, 2022.(f) Employee stock ownership plan or ESOP has the same definition as that term is defined in paragraph (7) of subsection (e) of Section 4975 of the Internal Revenue Code, as that provision read on January 1, 2022.(g) Employee ownership transition means the process of a business entering a broad-based employee ownership vehicle.(h) Feasibility assessment means a financial assessment of a companys debt capacity and other factors that will determine viable employee-ownership employee ownership transition scenarios.(i) Independent ESOP trustee means an ESOP trustee that is unrelated to the company, its officers, and its shareholders, and is in the business of serving as an ESOP fiduciary. (j) Manager means the Employee Ownership Hub Manager.(k) Worker cooperative or employment cooperative has the same definition as those terms are defined in Section 12253.5 of the Corporations Code.
12100.32. For purposes of this article, the following definitions shall apply:
(a) Advocate means the Small Business Advocate.
(b) Broad-based employee ownership vehicle means any of the following:
(1) An employee-owned corporation, as that term is defined in subdivision (c) of Section 91502.1.
(2) An eligible worker-owned cooperative or an eligible cooperative, as defined in subdivision (e). member-owned organization where the voting interest or stock is held by members, and the governing body is elected by the members on the basis of one vote per member.
(3) A business wherein the majority of stock is owned by an employee stock ownership plan. plan, as defined in subdivision (f), or by another trust on behalf of the companys employees.
(4) A business wherein the majority of which is owned by a trust that has the purposes of creating employee ownership and of promoting the financial and nonfinancial interests of all employees.
(5) A worker cooperative or employment cooperative, as defined in subdivision (k).
(6) A member-owned organization that includes workers as members and where the voting interest or stock is held by members, and the majority of the governing body is elected by the members on the basis of one vote per member.
(c) California capital programs means state programs offering capital assistance to businesses, including, but not limited to, the Small Business Loan Guarantee Program, the State Small Business Credit Initiative, the California Rebuilding Fund, and the California Capital Access Program.
(d) CalOSBA or office means the Office of Small Business Advocate within the Governors Office of Business and Economic Development.
(e) Eligible worker-owned cooperative has the same definition as that term is defined in paragraph (2) of subsection (c) of Section 1042 of the Internal Revenue Code, as that provision read on January 1, 2022.
(f) Employee stock ownership plan or ESOP has the same definition as that term is defined in paragraph (7) of subsection (e) of Section 4975 of the Internal Revenue Code, as that provision read on January 1, 2022.
(g) Employee ownership transition means the process of a business entering a broad-based employee ownership vehicle.
(h) Feasibility assessment means a financial assessment of a companys debt capacity and other factors that will determine viable employee-ownership employee ownership transition scenarios.
(i) Independent ESOP trustee means an ESOP trustee that is unrelated to the company, its officers, and its shareholders, and is in the business of serving as an ESOP fiduciary.
(j) Manager means the Employee Ownership Hub Manager.
(k) Worker cooperative or employment cooperative has the same definition as those terms are defined in Section 12253.5 of the Corporations Code.
12100.33. (a) Upon appropriation by the Legislature, the Office of Small Business Advocate CalOSBA shall establish the California Employee Ownership Hub, administered by an Employee OwnershipHub Ownership Hub Manager, appointed by the advocate.(b) The manager shall administer the Employee Ownership Hub, and may be responsible for the following duties:(1)Manage the Employee Ownership Education and Outreach Grants Program and the Employee Ownership Conversion Technical Assistance Grant Program. (2)(1) (A)Work with all California state agencies whose regulations and programs affect employee-owned companies, and businesses with the potential to become employee-owned, to enhance opportunities and reduce barriers.(B)For the purpose of developing recommendations to enhance the ability of employee-owned companies to access California capital programs, the recommendations shall only apply to ESOPs that satisfy one of the following conditions:(i)The ESOP has appointed an independent ESOP trustee.(ii)The ESOP has, as a trustee, a person or entity that has completed education on ESOP trustee best practices.(3)(2) Partner with grantee partners, and other relevant private, nonprofit, and public organizations including, but not limited to, professional and trade associations, financial institutions, labor unions, worker centers, Small Business Development Centers, economic and workforce development organizations, and nonprofit entities to promote employee ownership benefits and educate business owners and employees about the benefits of employee ownership and employee ownership transition succession models.(4)(3) Develop and make available Share materials regarding employee ownership benefits and employee ownership transition succession models.(5)(4) Provide a referral service to help business owners, labor unions, workers, and worker centers find appropriate legal, financial, and technical employee ownership resources and services. services to assist in employee ownership transitions and the growth of employee-owned businesses.(6)(5) Work with the California Infrastructure and Economic Development Bank, the California Pollution Control Financing Authority, and related entities to shape and implement guidance on lending to broad-based employee ownership vehicles. develop recommendations and enhance the ability of broad-based employee ownership vehicles to access California capital programs. Those recommendations shall only apply to ESOPs to the extent that the ESOPs satisfy one of the following conditions:(A) The ESOP has appointed an independent ESOP trustee.(B) The ESOP has, as a trustee, a person or entity that has completed education on ESOP trustee best practices.(7)(6) Report to the Legislature, in accordance with Section 9795, on activities undertaken pursuant to this article by the hub during the prior fiscal year, including recommendations for improvement.(A) The first report shall be due on January 15, following the first fiscal year in which funding is provided to implement any portion of this article.(B) This reporting requirement may be met separately or the information may be included in the annual report required by subdivision (b) of Section 12098.4.(C) The Office of Small Business Advocate CalOSBA shall also post the report to its internet website.(8)(7) Report employee ownership transition related concerns and recommendations to the advocate.
12100.33. (a) Upon appropriation by the Legislature, the Office of Small Business Advocate CalOSBA shall establish the California Employee Ownership Hub, administered by an Employee OwnershipHub Ownership Hub Manager, appointed by the advocate.
(b) The manager shall administer the Employee Ownership Hub, and may be responsible for the following duties:
(1)Manage the Employee Ownership Education and Outreach Grants Program and the Employee Ownership Conversion Technical Assistance Grant Program.
(2)
(1) (A)Work with all California state agencies whose regulations and programs affect employee-owned companies, and businesses with the potential to become employee-owned, to enhance opportunities and reduce barriers.
(B)For the purpose of developing recommendations to enhance the ability of employee-owned companies to access California capital programs, the recommendations shall only apply to ESOPs that satisfy one of the following conditions:
(i)The ESOP has appointed an independent ESOP trustee.
(ii)The ESOP has, as a trustee, a person or entity that has completed education on ESOP trustee best practices.
(3)
(2) Partner with grantee partners, and other relevant private, nonprofit, and public organizations including, but not limited to, professional and trade associations, financial institutions, labor unions, worker centers, Small Business Development Centers, economic and workforce development organizations, and nonprofit entities to promote employee ownership benefits and educate business owners and employees about the benefits of employee ownership and employee ownership transition succession models.
(4)
(3) Develop and make available Share materials regarding employee ownership benefits and employee ownership transition succession models.
(5)
(4) Provide a referral service to help business owners, labor unions, workers, and worker centers find appropriate legal, financial, and technical employee ownership resources and services. services to assist in employee ownership transitions and the growth of employee-owned businesses.
(6)
(5) Work with the California Infrastructure and Economic Development Bank, the California Pollution Control Financing Authority, and related entities to shape and implement guidance on lending to broad-based employee ownership vehicles. develop recommendations and enhance the ability of broad-based employee ownership vehicles to access California capital programs. Those recommendations shall only apply to ESOPs to the extent that the ESOPs satisfy one of the following conditions:
(A) The ESOP has appointed an independent ESOP trustee.
(B) The ESOP has, as a trustee, a person or entity that has completed education on ESOP trustee best practices.
(7)
(6) Report to the Legislature, in accordance with Section 9795, on activities undertaken pursuant to this article by the hub during the prior fiscal year, including recommendations for improvement.
(A) The first report shall be due on January 15, following the first fiscal year in which funding is provided to implement any portion of this article.
(B) This reporting requirement may be met separately or the information may be included in the annual report required by subdivision (b) of Section 12098.4.
(C) The Office of Small Business Advocate CalOSBA shall also post the report to its internet website.
(8)
(7) Report employee ownership transition related concerns and recommendations to the advocate.
(a)Upon appropriation by the Legislature, the manager shall establish and administer an Employee Ownership Education and Outreach Grant Program with the purpose of funding education and outreach programs that increase awareness and understanding of employee ownership transitions.
(b)Funding will be awarded to nonprofit organizations to develop and implement outreach initiatives and education programs that increase awareness about business transitions to broad-based employee ownership vehicles.
(c)The manager shall award grants to qualified nonprofit organizations for the purpose of performing qualified education and outreach services described in subdivision (g), including exactly one grant for the purpose of a marketing campaign as described in paragraph (2) of subdivision (g).
(d)Grant awards shall be made for an initial two-year term, beginning July 1, 2023, and ending June 1, 2025. Grantees may apply for renewal or extension of the initial two-year term, subject to approval by CalOSBA and availability of funds, through the 202627 fiscal year.
(e)The manager shall award grants to no more than five qualified nonprofit organizations during any two-year term.
(f)Indirect costs shall not exceed 15 percent of total expenses of each grant.
(g)(1)Qualified education and outreach services shall include the following:
(A)Services designed to increase awareness of worker ownership and transitions to broad-based employee ownership vehicles.
(B)Services designed primarily to reach a high volume of business owners through direct outreach, or through educational intermediaries, including the following:
(i)Capital providers.
(ii)Professional service providers.
(iii)Business technical assistance providers.
(iv)Industry and business associations.
(v)Labor unions and worker centers.
(vi)Local governmental entities.
(C)(i)Development of a statewide coordinated marketing campaign to increase business owner and business service provider awareness of transitions to broad-based employee ownership vehicles and available Employee Ownership Hub resources, including the Employee Ownership Conversion Technical Assistance Grant Program established pursuant to Section 12100.35.
(ii)The marketing campaign shall be developed with input from, and made available to, all grantees and the manager, to enhance clear messaging and high-quality marketing in all services provided under the Employee Ownership Hub.
(2)Qualified education and outreach services may also include outreach and education by labor unions and worker centers to businesses that may be a good fit for a transition to employee ownership.
(3)When delivering qualified education and outreach services, grantees shall include information on all types of broad-based employee ownership vehicles and on the range of governance and management structures that are possible within them, including democratically governed business structures and employee participation in business decisionmaking and governance.
(h)(1)To be eligible for a grant under the program, a qualified nonprofit organization shall satisfy all of the following:
(A)Demonstrated experience in providing outreach and education about worker ownership and about business transitions to one or more broad-based employee ownership vehicles.
(B)Demonstrated experience providing outreach and education services in California.
(2)Labor unions and worker centers may also be awarded grants in partnership with a qualified nonprofit organization to support education and outreach to businesses that are at risk of closure or succession.
(i)The manager shall prepare an annual report meeting the requirements of paragraph (7) of subdivision (b) of Section 12100.33 that includes the following:
(1)Number of businesses reached.
(2)Types and number of outreach activities.
(3)The information provided through these activities.
(a)Upon appropriation by the Legislature, the manager shall establish and administer, or contract with a third party or grant partner to administer, an Employee Ownership Technical Assistance Grant Program with the purpose of subsidizing the cost of conversion to employee ownership.
(b)The purpose of the grant program is to partially subsidize conversion costs for qualified businesses transitioning to broad-based employee ownership vehicles, making these transitions more accessible to California businesses, ensuring these transitions benefit California workers, and creating wealth building opportunities for Californians.
(c)(1)The manager shall preapprove grant applications to qualified service providers, and disburse grant funds upon receipt of invoices or contracts for qualified conversion services rendered to one or more qualified businesses.
(2)Grant awards shall not exceed the lesser of 50 percent of the costs of qualified conversion services of a qualified business or fifty thousand dollars ($50,000).
(3)Qualified service providers shall provide information about each qualified business receiving qualified conversion services, including the name, primary address, and business entity identifying number on file with the Secretary of State.
(d)For purposes of this section, the following definitions shall apply:
(1)(A)Qualified business means a business that is considering or undergoing a transition to employee ownership, and that satisfies all of the following:
(i)Is headquartered in California.
(ii)Has at least 10 employees.
(iii)Has been in business for at least 10 years.
(B)Notwithstanding subparagraph (A), the manager may make exceptions for businesses with as few as three employees, and for businesses in operation less than 10 years.
(2)Qualified conversion services shall include, but not be limited to, the following:
(A)Prefeasibility assessments.
(B)Feasibility assessments.
(C)Accounting services.
(D)Legal services.
(E)Transition plans.
(F)Succession planning services.
(G)Training for workers on employee ownership and democratic management and governance.
(3)(A)Qualified service provider means a provider of services listed in paragraph (2), that satisfies all of the following:
(i)Has at least two years of experience working with businesses considering or undertaking a transition to employee ownership.
(ii)In the case of a service provider that is providing feasibility studies, either has demonstrated experience in assessing debt capacity and conducting employee ownership feasibility studies, or is providing feasibility studies in collaboration with another business entity that has such demonstrated experience.
(B)A qualified service provider may provide for some or all of the services listed in paragraph (2) through contracts with other business entities.
(e)The manager shall prepare an annual report meeting the requirements of paragraph (7) of subdivision (b) of Section 12100.33 that includes the following:
(1)Number of businesses served using funds awarded pursuant to this section.
(2)Types of services provided.
(3)Number of jobs created or saved.
Nothing in this article prevents or creates an exclusion for employee-owned companies from participating in California capital programs, including, but not limited to, the provision of commercial loans, subordinated debt, and synthetic equity to broad-based employee ownership vehicles, or the use of those programs for the purchase of, or facilitation of the purchase of, broad-based employee ownership vehicles.