ESOP Tidal Wave: How State ESOP Programs Promote Exit Tools

The Rising Importance of State ESOP Programs

Employee Stock Ownership Plans (ESOPs) have been around since the 1970s, offering business owners a structured way to transfer ownership to their employees. In 2025, ESOPs aren’t just a niche succession strategy, they’re the centerpiece of a growing movement that’s sweeping across state legislatures. Michigan, Colorado, Washington, and other states are actively funding ESOP feasibility studies, offering tax credits, and building entire offices dedicated to supporting employee ownership.

If you’re a CPA, this is more than legislative trivia, it is a call to action. State-backed support for ESOPs means your clients are going to start hearing about them more often. When that happens, the only question will be, are you ready to lead that conversation?

This article explores why ESOPs are gaining steam at the state level, how that intersects with your role as a trusted advisor, and, most importantly, what concrete steps your firm should take to stay competitive in a rapidly evolving advisory landscape.

What Is an ESOP? Understanding the Basics

Before we get into policy shifts and CPA strategies, let’s get grounded. An Employee Stock Ownership Plan (ESOP) is a qualified retirement plan that invests primarily in the stock of the sponsoring employer. It functions through a trust (the ESOP trust), which holds shares on behalf of employees. Over time, employees accrue shares based on compensation or tenure, and upon retirement or departure, the company repurchases the shares.

There are three core components of an ESOP:

• The ESOP trust, which owns company stock and holds it for employees.
• The sponsoring company, which sets up and funds the ESOP.
• The employees, who become beneficial owners of the company stock over time.

For business owners, ESOPs offer an appealing alternative to traditional third-party sales. Instead of handing over control to private equity, they can preserve the company’s legacy, reward loyal employees, and still receive fair market value for their shares. For employees, ESOPs offer wealth-building opportunities without out-of-pocket investment. For the community, ESOPs keep businesses rooted locally, preserving jobs and economic stability.

This triple-bottom-line impact is exactly why states are taking notice.

Why States Are Jumping into the ESOP Movement

So, what’s fueling this new momentum around employee ownership at the state level?

The Silver Tsunami

We’ve been talking about the massive number of Baby Boomers preparing to leave the workforce for years, and now that wealth is being transferred at breakneck speed. Baby boomers own an estimated 2.34 million businesses, employing over 25 million Americans. As these owners retire, more privately held companies than ever are at risk of closure, consolidation, or sale to outside entities, often stripping communities of jobs and local ownership.

ESOPs as a Succession Tool

Employee ownership, particularly through ESOPs, offers a way to address this wave head-on. Unlike traditional private sales or PE buyouts, ESOPs maintain local jobs and often lead to better business performance post-transition. Research from the National Center for Employee Ownership (NCEO) shows that ESOP companies tend to:

• Grow faster
• Are more profitable
• Have higher employee retention rates

State-Level Gaps and Innovation

While federal policy has long supported ESOPs through IRC §1042 tax deferral and ERISA regulations, most small and midsized business owners still lack the technical support or capital to explore an ESOP on their own. That’s where states are stepping in, with grants, tax credits, feasibility funding, and educational offices designed to remove those barriers.

In short, states are recognizing ESOPs as a tool not just for retirement planning, but for economic development, workforce stability, and community resilience.

Michigan’s $500,000 Pilot Program – The Latest State to Launch an ESOP Program

In early 2025, the state of Michigan launched a $500,000 pilot program to support transitions to employee ownership, joining roughly 18 other states with similar ESOP-focused initiatives. Notably, Michigan has also established its own dedicated resource, the Michigan Employee Ownership Center, to help drive this effort.

What the Program Covers

According to the Michigan Employee Ownership Center (MIEOC), the pilot program allocates:

• $400,000 for direct grants to cover ESOP feasibility studies, legal structuring, and business valuations.
• $100,000 for educational outreach, best-practices research, and advisor training.

Strategic Goals

Michigan is home to thousands of manufacturing and service-sector businesses owned by aging baby boomers. Losing these businesses would have a negative impact on the state’s economy. By incentivizing ESOPs, Michigan aims to:

• Preserve jobs and local ownership
• Keep small businesses thriving beyond founder retirement
• Expand wealth-building opportunities for working families

Why CPAs Should Pay Attention

For CPA firms with clients in Michigan or the 18 other states with similar programs, this is a strategic opportunity. If your business owner clients are considering an exit, now is the time to have the conversation about options. If you don’t, another advisor will.

Here’s what CPA firms should be doing:

• Track timelines and funding availability. The Michigan program officially launched in July 2025, with funds distributed on a rolling basis. Do some research into what, if any, program exists in your state and what services are being offered. The programs, services, and funding vary greatly.
• Start client conversations early. Many feasibility studies can take months to complete, so getting ahead of the application window is key. An ESOP is not the optimal solution for all companies.
• Partner with ESOP experts: Having a valuation firm, ERISA lawyer, and ESOP trustee consultant in your referral network will help you guide clients from feasibility through execution.
  
  

State Programs Create A Growing Patchwork of ESOP Incentives

Michigan is the latest in a series of ESOP programs. Across the country, states are introducing ESOP incentives with real fiscal and policy backing. As of mid-2025, here are the most active:

Colorado

• Law Passed: HB 21-1311 (2021)
• Incentive: Tax credits covering 50–75% of ESOP conversion costs, up to $100,000.
• Additional Benefit: Capital gains tax exclusion for owners selling to an ESOP starting 2027.
• CPA Opportunity: Offer advisory packages around capital gains deferral strategies.

Washington

• Support Office: WA Employee Ownership Program (WA-EOP)
• Incentive: B&O tax credit up to $150K for EO conversions.
• CPA Opportunity: Connect clients with Department of Commerce advisors; help calculate ROI from tax credits.

California

• Law Passed: SB 1407 (2023)
• Support: Employee Ownership Hub inside the Governor’s Office of Business & Economic Development (GO-Biz).
• CPA Opportunity: Access ongoing grant cycles for EO education and assistance.

Oregon

• Bill Active: HB 3646
• Proposal: State procurement preference for businesses ≥50% employee-owned.
• CPA Opportunity: Flag EO transitions as a competitive advantage for government contract clients.

States with centers for employee ownership:

These states are signaling a clear trend: employee ownership isn’t a fringe exit strategy anymore, it’s public policy.

Why CPA Firms Should Care About the ESOP Shift

Client Expectations Are Changing

As ESOP support becomes more widely available through state-level incentives, clients, especially business owners nearing retirement, will begin to ask their accountants about it. If your team doesn’t have a confident answer, they’ll find an advisor who does.

New Advisory Revenue Streams

Firms that act now can capitalize on the ESOP momentum to build new advisory service lines. Services can include:

• ESOP readiness assessments
• Feasibility modeling
• Financial forecasts for post-transaction performance
• ESOP creation and implementation
• Trustee selection assistance and valuation referrals

Risk of Falling Behind

Advisory services are becoming more competitive. Whether it’s fractional CFO, wealth management, outsourced accounting, or M&A advisory, firms are fighting for a bigger slice of the client pie. Those who sit back and wait for a client to ask about ESOPs will miss the boat.

Practical Playbook for CPA Firms

1. Educate Your Team

Train your team on ESOP fundamentals. The AICPA offers certificate programs specifically focused on ESOP accounting, valuation implications, and ERISA fiduciary requirements. You can also find webinars through the National Center for Employee Ownership (NCEO) and The ESOP Association.

2. Reach Out to Clients

Don’t wait for clients to ask. Be proactive. Segment business owner clients in your CRM. Invite them to a breakfast briefing or lunch-and-learn event where you explore:

• The fundamentals and pros and cons of ESOPs
• How to decide if an ESOP is a solid exit strategy
• What incentives exist in your state (or are pending)

3. Build an ESOP Referral Network

You don’t need to be an ESOP expert in every area, but you do need partners. Start forming relationships with:

• Valuation firms that specialize in ESOP feasibility studies
• ERISA attorneys with ESOP trust structuring experience
• Wealth advisors who can support owners post-sale
• Bankers who understand ESOP lending (and SBA-backed deals)

4. Monitor Your State’s Legislation

Every month, more states are introducing or refining ESOP-friendly legislation, enhancing existing programs, and starting new ones. Assign someone on your team or ask your AI agent to monitor updates from:

• NCEO’s state policy tracker
• Project Equity’s policy dashboard
• State legislatures, chambers of commerce, and economic development organizations

5. Develop Service Bundles

Consider bundling ESOP offerings into formal advisory packages. These might include:

• ESOP and EOT feasibility modeling
• Ownership transition planning
• Integrated transaction support + IRC §1042 and entity structuring advisory
• Estate and Tax Planning
  
  

Strategic Questions for Firm Leadership

Is ESOP Advisory on Our Roadmap?

If succession planning is part of your strategic services, ESOPs should be too. They’re not going away, and state support makes them more viable than ever.

Do We Know Which Clients Might Benefit from ESOPs?

Target companies with:

• 20–500 employees
• Strong cash flow and low debt
• Loyal leadership and long-term workforce

What Skills Are We Missing Internally?

Do you need ESOP training? Valuation expertise? More trust accounting support? Identify gaps and build a plan to close them through training, hiring, or strategic partnerships.

Are We Willing to Lead in Our Market—or Follow?

The firms that get ahead of the ESOP curve will dominate advisory in this space for years to come. But that window won’t stay open forever.

Monitoring the ESOP Landscape

Tools for Staying Informed

• National Center for Employee Ownership (NCEO) – Offers detailed state-by-state breakdowns.
• Project Equity Policy Map – Highlights local policy wins and legislative momentum.
• The ESOP Association – Provides insight into both federal and state advocacy efforts, with member updates.
  
  

Conclusion: Time to Ride the Wave

We are witnessing a generational moment in ownership transition. The convergence of state-backed ESOP support, federal encouragement, and a mass retirement of business owners is creating a historic opportunity not just for employees or entrepreneurs, but for CPA firms.

This ESOP tidal wave is real. Sitting back isn’t a viable strategy. CPA firms that educate themselves, develop partnerships, and start the conversation with clients today will be positioned as the go-to advisors for tomorrow’s transitions.

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Frequently Asked Questions

Q1: What’s the difference between an ESOP and an EOT?

An ESOP is a highly regulated, tax-qualified retirement plan that provides employees with actual beneficial ownership of company stock. Employees receive distributions upon leaving the company, and owners selling to an ESOP can defer capital gains taxes under IRC §1042.

Q2: Which states currently offer ESOP tax credits or grants?

As of mid-2025, Michigan, Colorado, Washington, and California have active ESOP support programs. States like Oregon, Massachusetts, Maine, and North Carolina are advancing legislation or pilot efforts. Visit NCEO’s state tracker for up-to-date listings.

Q3: How do state ESOP incentives interact with federal tax deferral under IRC §1042?

Federal law (IRC §1042) allows sellers to defer capital gains taxes when they sell to an ESOP and reinvest in qualified securities. Some states layer on additional tax credits, grants, or capital gains exclusions, making the transaction even more favorable.

Q4: How long does an ESOP transaction typically take?

An ESOP transition can take 6–12 months from feasibility study to final transaction. Factors include company readiness, financing complexity, and team coordination.

Q5: What continuing education does the AICPA offer on ESOPs?

The AICPA offers an ESOP Certificate Program, plus CPE courses and webinars. Many state CPA societies also host ESOP-specific learning events.