Empowering Employees Through Stock Ownership Act Aims to Encourage Stock Options and Restricted Stock Units For Startup Employees

On July 12, 2016, the U.S. House of Representatives recently passed the Empowering Employees through Stock Ownership Act, a bill that would make it easier for startups and businesses to give employees an ownership stake by awarding stock options or restricted stock units.

Current tax law makes it difficult for many companies to share equity with their workers, as it requires employees to pay taxes when they exercise their non-qualified options (note there is no tax on exercise of an incentive stock option) or when their restricted stock units (RSUs) vest. Private company employees generally don’t have the ability to sell shares to cover their tax liability because there is no public market (or liquid secondary market) for the stock. So, they must pay the costs out of pocket. Without money to pay the IRS, a lot of employees end up passing on a chance to own the stock, and miss out on a potentially significant financial opportunity. Read more.