What is an Alternative Equity Structure: Employee Shares?

Alternative Equity Structures (AES) “Employee Shares” offer a range of ways employees can become shareholders in the company.  Rather than establishing a new trust or cooperative entity, AES plans are built directly into the company's compensation and shareholder agreements.  Common options include direct stock sales, stock grants, stock purchase plans, and stock options. Each one ultimately results in employees owning shares of the company, just like a shareholder in a corporation or a partner in a law firm would.

Unlike an ESOP, there are no ERISA rules to follow, no mandatory third-party valuations, and no specialized administrators to hire. Unlike a worker cooperative, the owner is not required to restructure the company or give employees equal voting rights. The owner sets the terms: who participates, how much they receive, when they get paid, and under what conditions. The plan can evolve as the company does.

For owners who want to start sharing the financial risks and rewards with employees without necessarily committing to a full ownership transition, AES is often the most practical and lowest-friction entry point.

Stoneage manufacturing, esop

Who it’s for

AES: Employee Shares are best for:

  • Owners seeking an incremental path toward employee ownership

  • Owners who want employees to benefit in an eventual sale to an external buyer

  • Companies that need to improve their financial standing before committing to a broader ownership transition

  • Owners who want a practical way to share the financial rewards of ownership while maintaining control of the company

How it works

  • Employees receive a % of profits or increase in the value of the business (paid out as cash bonuses)

  • No real change in ownership: employees do not hold actual shares, so the company does not have an obligation to buy back ownership when employees leave. This avoids the long-term repurchase costs that can arise in ESOPs or “Employee Shares” AES

  • Owner can decide who participates

  • % of profits or share in value of the business varies by employee based on predetermined factors such as their tenure, role, or length of participation in the plan

The Benefits

OWNER Benefits

  • Owner can decide who participates

  • Shared risk & reward

  • Attracts motivated employees who actively choose ownership

  • Ownership % varies by employee 

  • Can sell % incrementally over time

Employee Benefits

  • Employees become traditional shareholders; receive dividends and the resale value of shares

  • Optional employee voting rights

Dive deeper into Employee Share Alternative Equity Structure

COST

  • $7-15k legal fee

tax perks

  • Dividends and share value paid out to employees can be treated as long-term capital gains

  • AES does not provide special tax treatment that avoids corporate-level taxation, but they do allow companies to control the timing and amount of payments based on available cash flow

mISCONCEPTIONS

  • AES structures are not unique to employee ownership contexts. However, in the State of Colorado, businesses can achieve formal 'employee-owned' status and qualify for tax credits on EO implementation costs by reaching certain thresholds of equity and information sharing through these standard models.

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