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The Employee Ownership Update

Loren Rodgers

August 1, 2011

(Loren Rodgers)

Ohio Reduces Funding for OEOC

The State of Ohio has provided funding for the Ohio Employee Ownership Center (OEOC) at Kent State University since 1987. For the fiscal year starting July 1, 2011, however, due to the state's budget crisis, grant funding from the Ohio Department of Development will not be available, resulting in a substantial loss of funding for the OEOC. However, most of its funding comes from sources other than the state grant, and the OEOC says it wants to "assure the employee ownership world of our commitment and ability to maintain the Center's operations, in both the short and the long term." The OEOC will continue to operate and to encourage and facilitate the growth of employee ownership.

Time Remains to Take NCEO's Survey on Private Company Equity Compensation Practices

The NCEO is conducting a survey of private, non-ESOP companies that grant equity to employees, as well as a separate survey of venture capital and other investor groups in these companies. If you fit these definitions, by taking this very short 10-minute survey, you can get the results at no charge. If you are an advisor and have one or more non-ESOP private company clients who grant equity to one or more employees, you can take the survey for your clients. You can fill out a separate survey for each client.

To take the survey, companies should go to this link, and investors and venture firms should go to this link.

Senators Introduce Bill That Increases Tax on Stock Options

Senators Carl Levin (D-Mich.) and Sherrod Brown (D-Ohio) introduced S. 1375, which would require companies to use the same value for their options on both their books and their tax returns. Senator Levin noted that current law allows companies to use different stock option valuation methods on their income statements than on their tax returns (companies expense options on their income statement based on a present value estimate at the time of grant but take a deduction for the actual value of the tax-deductible spread at the time of exercise). Companies use a method that creates a higher expense for tax purposes, which Levin called a "tax subsidy," and claimed the bill would generate $25 billion for the federal treasury over the next 10 years.

Twitter to Use Private Financing to Buy Employee Shares

Following LinkedIn's successful IPO, commentators suggested that other Internet firms might try IPOs of their own. Twitter, however, is planning to follow a different path. The company is raising $800 million in private financing and expects to use roughly half of that amount to buy back shares from current shareholders, including its 600 employees. The investment implies a value for Twitter of $8 billion, more than double its implied value from a December 2010 investment by Kleiner Perkins Caufield & Byers.

IRS Announces Adjustments to ESOP Review Process

The IRS created a revised three-page Employee Stock Ownership Plan Review Worksheet (PDF format) to be used in its initial review. Companies and service providers may use the document to help draft or review plan documents.

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