Legislation introduced by U.S. Rep. Randy Hultgren (R-IL) to encourage small businesses to offer ownership stakes to employees was approved by the House this week with bipartisan support.
The Encouraging Employee Ownership Act (EEOA), H.R. 1343, would address regulatory red tape and employee compensation reporting requirements that prevent small businesses from offering equity stakes to employees.
Hultgren, vice chairman of the House Financial Services’ Capital Markets, Securities, and Investment Subcommittee, said his bill is based on the belief that employees who own a stake in a company work hard every day, want to see it do well and do their best to make sure the business succeeds.
“Their sense of ownership over details large and small makes a real difference to the bottom line and, just as importantly, to the quality of life of the employers and employees,” Hultgren said. “When the company succeeds, the employee succeeds. The business in turn receives a large boost in productivity, enabling it to expand its reach and invest in new technology and equipment. EEOA would make it easier for companies in Illinois and nationwide to let hardworking employees own a stake in the business they pour their sweat into every day.”
The Jumpstart Our Business Startups (JOBS) Act, signed into law five years ago, took steps to provide small businesses more access to capital by loosening regulations that make crowdfunding a more viable option. However, Hultgren said that bill’s central idea that employee compensation securities should be treated differently than traditional securities has not been extended to SEC Rule 701, which places reporting requirements on employee compensation packages.
“EEOA raises the outdated threshold for enhanced disclosure from $5 million to $10 million, keeping pace with inflation every five years,” Hultgren said. “We are taking something that is already working and making it available to more companies and more employees.”
U.S. Rep. Bill Huizenga (R-MI), chairman of the Capital Markets, Securities, and Investment Subcommittee, said EEOA would level the playing field for small companies by updating federal rules to allow them to compensate their employees with an ownership stake in the business.
“A critical element of competition and success is for small businesses to be able to offer compensation packages that attract and retain top-tier talent. In today’s world, that includes rewarding employees with stock options. To me this just makes common sense,” Huizenga said.
“By increasing Rule 701 to the threshold of $10 million, it will give private companies more flexibility to attract, reward, and retain employees. This simple change would allow companies to offer twice as much stock to their employees annually without having to trigger additional disclosure information to investors about compensation packages that include securities offerings,” Huizenga added.
U.S. Rep. French Hill (R-AR), a member of the subcommittee, said he previously helped young companies form and raise capital in the private sector, often extending stock options and opportunities to buy stock to those who did not have excess cash to invest.
“Many companies issue stock to compensate their employees, but it is especially important to startup businesses and private businesses,” Hill said. “It is especially important to those businesses that are trying to compete with big private enterprises that have a public stock to offer as an incentive.”
“Further, for employees, this stock ownership is a huge source of pride, allowing individuals to participate in the growth and prosperity that their hard work and sweat equity have helped build,” Hill added.