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Colorado to Provide Loans to Businesses Transitioning to Employee Ownership

Publications - Client Alert | May 15, 2017

On Thursday May 18, 2017, Colorado Governor John Hickenlooper signed into law HB 17-1214, which will provide financial assistance to small businesses seeking to transition to employee ownership. Citing the need for Colorado businesses to create succession plans and the need to create and retain jobs in Colorado, HB 17-1214 creates a revolving loan program to provide loans of up to $10,000 to certain employers transitioning to an employee-owned business.

This law is similar to Iowa legislation passed in 2012, which created a program to provide loans to businesses seeking to create an employee stock ownership plan (an ESOP). An ESOP is a type of employee benefit plan that offers employees the opportunity to receive ownership in the company for which they work. Unlike the 2012 legislation passed in Iowa, the funds appropriated by Colorado HB 17-1214 are not limited to corporations and do not necessarily need to be used to create an ESOP.

Eligible Employers

In order to be eligible to apply for this program, a business must be at least two years old, have at least three employees, and cannot have net revenues exceeding $5 million. Further, the business must offer the opportunity for ownership to every employee and must have plans to sign an employee-ownership agreement with at least half of its employees.

Revolving Loan Program

HB 17-1214 allows eligible employers to receive a loan in an amount up to 50% of the cost of transitioning to an employee-owned business, but in no event will the loan exceed $10,000. The loans may be used for the expenses of transitioning to employee ownership. Loans may not be used to pay for general operating expenses or capital expenditures or to make payments on debt. The Colorado Office of Economic Development (the “Office”) will provide more guidance regarding the kinds of expenses these loans may cover.

Loans will be distributed from a fund administered by the Office unless the Office determines that it would be more efficient to contract the administration of the program to a bank or financial institution. This program will be funded through gifts, grants and donations. This revolving loan program will expire July 1, 2022.

Additional Information

If you have any questions about Colorado HB 17-1214, or if you would like assistance with the transition of your business to employee ownership, please contact a member of our Employee Benefits Practice Group listed below.