European ESOP
The European ESOP is a legal framework that helps business owners to sell shares of their companies to the employees.
European ESOP
The European ESOP is a legal framework that helps business owners to sell shares of their companies to the employees. The model provides a practical solution for ownership succession and serves as a motivational tool for employees, while also offering a sustainable and socially responsible ownership structure for European businesses – especially in the SME sector. In 2022, the European ESOP was awarded the SozialMarie Prize for Social Innovation.
What is the European ESOP?
The Employee Stock Ownership Plan (ESOP) in the USA and the Employee Ownership Trust (EOT) in the UK are, with thousands of successful cases, two of the most successful models for achieving employee ownership today. The European ESOP takes the best from both models, whilea addressing some of their shortcomings.
What’s worth keeping:
- Leveraged buyout
- Individual ownership through individual capital accounts (ICAs)
- Possibility of gradual and partial conversion
- Sustainable ownership inclusive of all permanent employees
Our improvements:
- Shares are continuously repurchased to provide better incentives, avoid repurchase liability, and ensure a more equitable distribution of risk
- The legal entity of the ESOP trust is a cooperative, which guarantees democratic representation –representation – improving accountability and productivity – and makes the process of distributing ownership claims and voting rights among employees automatic.
Nuts and bolts of the European ESOP
There are three steps to the European ESOP transaction:
Step 1 - INITIAL TRANSACTION
First, the value of shares is estimated**. After that, the seller of shares (or a creditor) gets a note guarantee by the company, which ensures dedicated contributions to pay off the debt. Finally, the shares are transferred to the employee ownership cooperative (EOC), which now owes to the seller/creditor the agreed amount.
