Two Pro-ESOP Bills Pass the Senate with a Unanimous Vote

Two Pro-ESOP Bills Pass the Senate with a Unanimous Vote

by | Oct 17, 2025 | ESOP Business Valuation

In a rare moment of total agreement, the U.S. Senate just passed two major pro-ESOP bills—S. 2403, the Promotion and Expansion of Private Employee Ownership Act, and S. 1728, the WORK Act—both with unanimous support. For ESOP trustees and owners, this is big news. These bills are designed to make it easier for companies to start and maintain ESOPs, while strengthening the programs and resources that keep them running smoothly. In short, Washington is sending a clear message: employee ownership works, and it deserves strong, ongoing support.

Retire Through Ownership Act (S. 2403)

What This Bill Does

This bill is all about making the rules for Employee Stock Ownership Plans (ESOPs) much clearer. Its main job is to clarify how the value of privately-held company stock is determined for retirement accounts.

The Impact for ESOP Companies & Trustees

Think of this as a major headache reliever for companies and the trustees who run the ESOPs:

  • Legal Protection: It creates a “safe harbor.” ESOP fiduciaries can now confidently rely on valuations provided by independent appraisers who use the well-known IRS Revenue Ruling 59-60 guidelines.
  • Stops Lawsuits: This clarity is designed to cut down on frivolous lawsuits and government investigations (known as “regulation by litigation”) that have targeted ESOPs for decades over stock valuations.
  • Encourages Growth: By lowering the legal risk, the bill makes it much easier and less scary for business owners to choose an ESOP as their company’s succession plan.

The Impact for Employee-Owners

For employees who participate in the ESOP, this means greater peace of mind about their retirement savings:

  • More Security: The value of your company stock—the asset that makes up your retirement wealth—will be determined using a consistent, legally-backed method.
  • Stronger Plans: By making the rules more certain for company leaders, the bill helps ensure the overall stability and long-term health of your employee ownership plan.

Essentially, it’s a bipartisan effort to strengthen the whole concept of employee ownership by removing a huge area of legal uncertainty.

The Employee Ownership Representation Act (S. 1728)

The Employee Ownership Representation Act (S. 1728) is about getting ESOPs a bigger voice inside the government agencies that make the rules. It’s less about the money and more about representation and advocacy.

What This Bill Does

It puts people who understand ESOPs in key positions at the Department of Labor (DOL).

  • Seats at the Table: It adds two new representatives from employee ownership organizations to the ERISA Advisory Council. This is the group that advises the DOL on retirement and benefit policies, so now ESOP voices will be heard when rules are being discussed.
  • The ESOP Advocate: It creates a dedicated Advocate for Employee Ownership position within the DOL. This person’s job is to promote ESOP awareness and help tackle issues across different federal agencies.
  • A Dedicated Office: It directs the DOL to establish an Office of Employee Ownership to focus on the Employee Ownership Initiative, ensuring this work is a priority.

The Impact for ESOP Owners

It basically gives the employee-owned community a direct line to the policymakers and regulators who oversee retirement plans.

  • Better Policy: When the DOL develops new rules or guidance (like for the valuation issues S. 2403 addresses), there will be ESOP experts right there to offer practical feedback and prevent unintended negative consequences.
  • More Visibility: It elevates the importance of employee ownership within the federal government, which should lead to better understanding and more support for ESOPs going forward.
The Tariff Factor: What Business Owners and Advisors Need to Know About Its Impact on Value

The Tariff Factor: What Business Owners and Advisors Need to Know About Its Impact on Value

by | Oct 17, 2025 | ESOP Business Valuation, Estate and Gift Tax Business Valuation, SBA Business Valuation and Appraisal

Tariffs can quietly reshape what your business is worth. They influence both the numbers that drive a valuation and the level of risk investors or buyers are willing to accept. Whether you’re preparing for a sale, an ESOP, litigation, or financial reporting, understanding how tariffs affect value helps you make sense of the conclusions your valuation professional provides.

  1. How Tariffs Affect Cash Flow — the “Earnings Power” Behind Value

Tariffs most directly hit the financial side of a company — its ability to generate future cash flows. For users of valuations, this means that even if revenues appear stable, profitability and value may fall.

  • Higher Costs: Tariffs raise the price of imported materials, parts, or finished goods. Unless those costs can be fully passed on to customers, profit margins shrink.
  • Reduced Competitiveness: If competitors source domestically or from countries not subject to tariffs, they may maintain lower prices, pressuring your market share.
  • Revenue Pressure: Passing on tariff-related costs often leads to higher selling prices — and possibly lower demand.
  • Increased Overhead: Managing new compliance, customs, and sourcing requirements adds to operating expenses and reduces free cash flow.

In short, higher costs and lower margins translate directly to lower earnings and, therefore, lower value.

  1. How Tariffs Affect Risk — and Why It Changes the Discount Rate

Valuators also consider risk perception — how uncertain your company’s future appears to investors or the market. Tariffs can increase this uncertainty in several ways:

  • Economic and Political Volatility: Shifting trade policies make forecasting less reliable.
  • Higher Discount Rates: Greater uncertainty means investors demand a higher return, which mathematically reduces value in discounted cash flow (DCF) models.
  • Industry Exposure: Manufacturing, automotive, construction materials, and retail are often hit hardest. Companies in these sectors face both operational and valuation risk.
  • Investor Sentiment: Trade tensions can reduce market confidence, lowering valuation multiples for comparable companies.
  1. How Valuation Professionals Account for Tariffs

Valuators don’t treat tariffs as an afterthought — they build them into every stage of the analysis. For users of valuation reports, here’s what that looks like:

  • Scenario Analysis: Multiple forecasts are modeled to test the effect of different tariff levels — showing best, base, and worst-case outcomes.
  • Adjusted Financial Forecasts: Tariff-driven cost increases and revenue impacts are explicitly reflected in the company’s projections.
  • Risk Adjustments: Discount rates may be increased to reflect tariff-related uncertainty and industry exposure.
  • Market Evidence: Comparable public company and transaction multiples are reviewed for signs that the market has already “priced in” tariff effects.
  • Qualitative Review: Beyond numbers, a valuator assesses management’s ability to adapt, source alternatives, and sustain profitability under new trade conditions.
  1. What This Means for Business Owners and Advisors

If your company operates in an industry affected by tariffs — or relies on imported materials or export markets — you should expect your valuation professional to address this directly. A thoughtful valuation will:

  • Explain how tariffs affect your specific cost structure and customer base.
  • Demonstrate how the risks are quantified in the valuation model.
  • Provide scenario-based insight into how value could change if tariff conditions shift.

Conclusion

Tariffs aren’t just a headline — they’re a measurable factor that can alter business value through their effect on costs, competitiveness, and risk. For users of valuations, recognizing how your appraiser has incorporated (or should incorporate) tariff considerations ensures that you can better interpret the numbers and use them confidently in decision-making.

Pro-ESOP Legislation Moves Forward

Pro-ESOP Legislation Moves Forward

by | Aug 17, 2025 | ESOP Business Valuation

Advancing Employee Ownership: A Look at Recent Senate Bills

Bipartisan support for Employee Stock Ownership Plans (ESOPs) is growing in Washington, as evidenced by two key pieces of legislation that recently moved through the Senate. Both the “Promotion and Expansion of Private Employee Ownership Act” and the “Employee Ownership Representation Act” aim to remove barriers and provide new incentives for businesses to adopt an employee-owned model.

The Promotion and Expansion of Private Employee Ownership Act of 2025

Introduced by Senators Steve Daines (R-MT) and Maggie Hassan (D-NH), this bill seeks to make it more appealing for private companies, particularly S corporations, to transition to employee ownership. Its main provisions include:

  • Expanded Tax Deferral: The legislation would allow owners of S corporations who sell at least 30% of their company to an ESOP to defer 100% of the capital gains taxes, a significant increase from the current 10% deferral set to take effect in 2027.
  • Government Support: The bill mandates the creation of an S Corporation Employee Ownership Assistance Office within the Treasury Department to provide educational and technical assistance.
  • Advocacy: A new Advocate for Employee Ownership position would be established within the Department of Labor (DOL) to promote employee ownership and act as a liaison between stakeholders.
  • Small Business Certification: The act would ensure that businesses retain their small business certifications even after an ESOP takes a controlling stake, as long as the majority of the new employee owners meet the required criteria.

You can read more about this bill here.

The Employee Ownership Representation Act of 2025

This bill, along with the “Retire Through Ownership Act,” was recently advanced unanimously by the Senate Health, Education, Labor, and Pensions (HELP) Committee, moving it closer to a full Senate vote. The legislation focuses on strengthening the institutional support for ESOPs:

  • ERISA Advisory Council: The bill would add two ESOP company representatives to the ERISA Advisory Council, giving the employee ownership community a greater voice in shaping federal policy.
  • New DOL Office: It would create a new Office of Employee Ownership within the DOL, separate from the Employee Benefits Security Administration (EBSA), to better support and promote ESOPs.
  • Advocate for Employee Ownership: An amendment to this bill also includes the creation of the Advocate for Employee Ownership position, which would provide guidance and work with other agencies to expand employee ownership.

To learn more about the bills advancing through the HELP committee, you can read the full article here.

The Future of Business: Dynamic Risk and Hyper-Efficiency with AI

The Future of Business: Dynamic Risk and Hyper-Efficiency with AI

by | Jun 24, 2025 | ESOP Business Valuation

AI can be a powerful co-pilot in navigating risk and boosting efficiency by processing vast amounts of data, identifying patterns, and automating tasks that would otherwise be time-consuming or prone to human error.  But humans must review and refine the results.  From time to time, AI does make mistakes, just like any other tool or person.

The key is to view AI not as a replacement, but as an intelligent assistant that amplifies your capabilities.

Let’s break down how AI can help you with both risk navigation and efficiency.

Using AI to Understand Your Company and Market Risks

AI offers a powerful solution by enabling dynamic risk assessment. This should be integrated into your planning and forecasting process.  Here’s how it works:

  • Continuous Data Ingestion: AI algorithms can constantly ingest and process vast amounts of real-time data, including:
    • Financial Market Data: Interest rates, bond yields, equity market indices, volatility indices.
    • Economic Indicators: Inflation rates, GDP growth, unemployment figures, consumer confidence.
    • Industry-Specific Data: Commodity prices, regulatory changes, technological disruptions.
    • Company-Specific Data: Stock prices (for public companies), credit ratings, news sentiment, social media activity.
  • Intelligent Pattern Recognition: Machine learning algorithms can identify subtle patterns and correlations within this data that human analysts might miss. This enables a more nuanced understanding of how various factors impact risk.

Using AI to Increase Efficiency

AI also excels at automation, optimization, and personalization, freeing up your time and mental energy.

  • AI-powered search engines and tools can quickly find, filter, and summarize vast amounts of information from the web or your documents. Instead of sifting through articles, you can get the key takeaways in seconds
  • AI writing assistants can help you draft emails, reports, marketing copy, and even creative content much faster. They can also proofread, correct grammar, improve clarity, and adjust tone.
  • AI-powered scheduling assistants can find optimal meeting times, send invites, and set reminders without manual effort
  • AI tools can transcribe meeting audio in real-time and even summarize key discussion points and action items, saving note-taking time.
  • AI can act as a brainstorming partner, generating ideas, concepts, or solutions based on your prompts.

The Human Element Remains Crucial

While AI offers immense potential in dynamic risk assessment and efficiency, it’s crucial to remember that human expertise remains vital. AI provides the powerful analytical engine, but valuation professionals bring the critical thinking, industry knowledge, and qualitative judgment necessary to interpret the results and ensure the model’s assumptions are sound.

By strategically integrating AI tools into your daily routines and decision-making processes, you can significantly enhance your ability to anticipate and mitigate risks while simultaneously achieving unprecedented levels of efficiency in both your personal and professional life.

The key is to view AI not as a replacement, but as an intelligent assistant that amplifies your capabilities.

Riding the Economic Waves: How Economic Conditions Can Capsize Your Buy-Sell Agreement

Riding the Economic Waves: How Economic Conditions Can Capsize Your Buy-Sell Agreement

by | May 19, 2025 | ESOP Business Valuation

For closely-held business owners, a buy-sell agreement is a cornerstone of succession planning and business continuity. It’s the “pre-nup” for business partners, outlining what happens if an owner departs, whether due to death, disability, retirement, or other triggering events. A critical component of these agreements is the mechanism for valuing the departing owner’s interest. But what happens when the economic landscape shifts dramatically between when the agreement is drafted and when it’s triggered?

Many business owners treat their buy-sell agreement as a “set it and forget it” document. This can be a costly mistake, especially when economic tides turn. Fluctuating economic conditions can significantly impact the fairness and feasibility of a buy-sell agreement, potentially leading to disputes, financial strain, or even the unraveling of the business itself.

Proactive Steps to Weather the Economic Storm:

So, how can business owners ensure their buy-sell agreements remain fair and functional regardless of the economic climate?

  1. Regular Reviews are Non-Negotiable: Don’t let your buy-sell agreement gather dust. Review it annually, or at least every 2-3 years, and specifically after any major economic shift or significant change in your business.
  2. Flexible Valuation Mechanisms: Avoid fixed values for extended periods. Consider using a formula that incorporates current financial data and perhaps industry-relevant multiples. Better yet, stipulate a process for valuation at the time of the trigger, such as an agreement to hire one or more qualified, independent business appraisers. This ensures the valuation reflects the conditions at the time of the buyout.
  3. Multiple Funding Options & Contingencies: Regularly review life insurance coverage to ensure it aligns with the business’s current value. Consider a sinking fund or other savings mechanisms. Outline provisions for seller financing, including how interest rates will be determined (e.g., tied to a benchmark prime rate).
  4. Consult Your “A-Team”: Work with experienced legal counsel, a CPA, and potentially a business valuation expert when drafting and reviewing your buy-sell agreement. They can help you anticipate various scenarios and build in appropriate flexibility.

A buy-sell agreement is a living document that must adapt to the evolving realities of your business and the broader economy. By proactively addressing the potential impacts of economic conditions, you can protect your business, ensure fair treatment for all own owners, and maintain the stability you’ve worked so hard to build.

 

Colorado Boosts Employee Ownership with New Tax Incentives

Colorado Boosts Employee Ownership with New Tax Incentives

by | Apr 10, 2025 | ESOP Business Valuation

Colorado is making significant strides in promoting employee ownership with a new bill that introduces substantial tax benefits and expands existing programs. Starting in 2027 and running through 2037, the legislation offers two key income tax subtractions:

  • Capital Gains Subtraction: Taxpayers who convert at least 20% of their qualified business to employee ownership can subtract the state capital gains realized from this conversion.
  • Worker-Owned Cooperative Subtraction: Worker-owned cooperatives can subtract their federal taxable income, up to $1 million.

Furthermore, the bill extends and enhances the existing tax credit for employee business ownership conversion costs. Key changes include:

  • Extending the credit through 2037.
  • Increasing the credit percentage from 50% to 75% starting in 2026.
  • Adjusting the annual aggregate credit limits to $3 million (2026-2031) and $4 million (2032-2037).
  • Expanding eligibility by revising definitions and allowing qualified support entities (nonprofits aiding conversions) to claim the credit.

These changes aim to incentivize business owners to transition to employee ownership, empower workers, and strengthen local economies by fostering a more equitable business landscape.

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