In October 2025, Slovenia adopted a new law that places employee ownership—and conversions to employee ownership—on a clear legal and tax footing. The Employee Ownership Cooperative Act (EOCA) is designed to provide a structured pathway for employees to become long-term co-owners of the companies in which they work, without requiring them to pool their personal savings or take on personal debt to purchase shares.^[1]

The objective of the legislation, as stated in the EOCA, is for the Employee Ownership Cooperative (EOC) to “acquire and manage shares [in the parent company] with the aim of ensuring the long-term and sustainable inclusion of the majority of employees in ownership.” Although the EOCA can also be used to establish employee incentive schemes involving the sharing of profits, value and control, its primary purpose is to provide a new succession tool for existing owners who wish to transfer ownership to the next generation.^[2]

What problem is the EOCA trying to solve?

Employee ownership has a long history. Countries around the world have experimented, with varying degrees of success, with different legal forms of employee financial participation and worker control, including cooperatives, ESOPs, EOTs, employee share purchase plans, profit-sharing schemes and hybrid models. Two practical obstacles, however, arise repeatedly.

1. Creating employee ownership is difficult. Most start-ups are established as conventionally owned companies, while employee-owned start-ups remain relatively rare. A more effective strategy is therefore to convert existing businesses to employee ownership. However, most employees do not have sufficient capital to acquire a meaningful ownership stake. At the same time, owners considering a sale often prefer options that are quick, liquid and legally straightforward, such as selling to a competitor, private equity investor or strategic buyer.
2. Maintaining employee ownership is hard. Even when a company is successfully converted to employee ownership, the model can unravel over time. Employees may leave and take their shares with them. Changes in company valuation may create repurchase obligations that are difficult to finance. Governance may gradually shift towards managerial dominance. Unless the ownership structure is designed to manage these dynamics, such problems can accumulate and eventually undermine employee ownership.

The EOCA represents Slovenia’s attempt to address these constraints through a repeatable conversion mechanism: a pathway that can work for a wide range of ordinary companies, rather than only for a small number of committed enthusiasts. To achieve this, it draws on successful international models, including ESOPs in the United States, EOTs in the United Kingdom and the Mondragon cooperatives in Spain, while also seeking to address some of the challenges associated with these models.

A cooperative that holds shares on behalf of employees

The EOCA creates a special type of cooperative—the Employee Ownership Cooperative, or EOC—whose purpose is narrowly defined. It exists to acquire, hold, manage and, under certain conditions, dispose of a stake in a single company for the benefit of its employee-members. 

The EOC can be understood as a collective holding vehicle. The cooperative becomes the shareholder, while employees become members of the cooperative. Their economic entitlements are recorded through individual capital accounts, similar in principle to accounts used in US ESOPs and Mondragon cooperatives. Democratic governance within the cooperative follows the principle of one member, one vote.

This structure is often referred to as the Cooperative ESOP^[3], because it combines:

• the leveraged-buyout logic of US ESOPs and UK EOTs, under which a dedicated vehicle acquires shares using financing ultimately supported by the company; and
• a cooperative governance model common in Europe, most notably in the Mondragon cooperatives in Spain, based on member democracy, a capped membership contribution and broad employee inclusion.

Who can use the EOCA model?

The basic structure involves three parties:

1. the selling owner or owners, whether individuals or legal entities;
2. the operating company in which the employees work; and
3. the EOC, which acts as the intermediary holding the ownership stake.

One important practical detail is that employees of controlled subsidiaries must also be eligible for membership where the EOC is established at the level of the controlling company.^[4] The operating company may take one of several common legal forms, including a joint-stock company or limited liability company. The law is therefore designed for broad application rather than being restricted to a narrow category of businesses. 

The step-by-step logic of a conversion 

The following is a simplified overview of how a typical Cooperative ESOP conversion works.

Step 1: Employees establish a cooperative 

Employees, including eligible employees in affiliated entities, establish a cooperative that will act as the purchaser. Its rules define its sole purpose: to hold a stake in the operating company for the benefit of its employee-members. To ensure that membership remains broad and non-discriminatory, the law caps the mandatory membership contribution at €300, payable in cash. Each member may subscribe to only one mandatory share. This is more important than it may initially appear. Many employee-ownership arrangements become selective because participation requires a significant personal financial contribution. The EOCA seeks to prevent this by making eligibility depend primarily on employment in the operating company, rather than on an employee’s ability to purchase company shares.

Step 2: The cooperative applies for a special status

Under the EOCA, the competent ministry decides whether to grant the cooperative official Employee Ownership Cooperative status. This decision is based on whether the cooperative’s rules comply with the statutory requirements, and recognised EOCs are entered in an official register. Once granted EOC status, the cooperative becomes eligible for the specific legal and tax benefits provided by the Act. 

Step 3: The EOC acquires shares, usually using debt

The EOC acquires a stake in the operating company, typically through debt financing. It borrows the funds required to purchase the shares from the owner. The financing may be provided by a commercial bank, the operating company, the seller or another lender. The EOC becomes the shareholder without requiring employees to take out personal loans or invest their own savings.

Step 4: The operating company supports repayment of the acquisition financing

The operating company provides a stream of payments to the EOC. In practice, this is what makes the conversion financially feasible. The acquisition debt is repaid from the company’s future cash flows rather than from employees’ current wages or personal savings. Government explanations of the law also emphasise that the EOCA regulates financing from the operating company and creates a basis for potential public co-financing instruments. These company contributions differ from dividends because they are paid specifically to the EOC rather than proportionally to all shareholders. They also receive favourable tax treatment under the Act.

Step 5: Employees accumulate economic entitlements through individual accounts

As the EOC repays the acquisition debt and the value of the operating company changes, the economic entitlements of EOC members are recorded in their individual capital accounts. The EOCA is designed so that employees benefit indirectly from the company’s success through these accounts and through subsequent distributions. The value recorded in each individual account forms the basis for determining the value of the member’s cooperative interest. The initial mandatory contribution of €300 may therefore increase as additional value is allocated to the account. These entitlements may be paid out gradually during membership or following the end of an employee’s membership. 

Step 6: Governance operates at two levels

The EOCA establishes a two-level governance structure:

1. Democratic governance within the cooperative. Each member has one vote. Certain important decisions—including the disposal of shares held by the EOC, changes to EOC status and amendments to internal rules—are subject to enhanced quorum or approval requirements.
2. Professional management within the operating company. The company continues to be managed through its existing corporate governance structure, while shareholder rights attached to the EOC’s stake are exercised through the cooperative.

The EOC therefore acts as a block shareholder, but the use of its voting and ownership rights is subject to democratic authorisation within the cooperative.

Funding the cooperative: where the cash comes from

A key design feature of the EOCA is that the EOC is not a conventional operating business. It functions primarily as a holding and distribution entity. Its cash inflows typically come from company contributions, referred to as ESOP contributions, and from profit distributions linked to the stake it holds. ESOP contributions are often the principal source of debt repayment and, as explained below, may also receive favourable tax treatment.

The law also explicitly provides for debt financing and potentially for combining private financing with public funds. In this respect, the model resembles the logic of ESOPs in the United States and EOTs in the United Kingdom and Canada.

Valuation: how the price is determined and why it matters

Valuation is a critical factor in the success of employee-ownership conversions:

• If the seller believes that the EOC will be unable to meet their price expectations, they may decide not to sell.
• If the purchase price places excessive pressure on the financial viability of the scheme, employees may be unwilling to proceed with the acquisition.
• If the internal valuation overstates employee entitlements, future repurchase obligations may become difficult to meet. 
• If the valuation rules are unclear, legal risk and professional costs may increase.

The EOCA contains provisions governing how acquisitions are valued and approved. It also provides for situations in which the purchase price is set at or below a benchmark based on book value.

The law seeks to reduce certain tax-related valuation complications by giving the seller access to specific valuation options. These may, but do not necessarily, allow the seller to transfer shares below fair market value where the price is determined in proportion to the net asset value of the operating company. A transaction between the EOC and the seller may therefore be based on:

• an official appraisal of the shares using fair market value; or
• a balance-sheet valuation based on the net asset value of the operating company.

The allocation and distribution of capital value to members through the individual capital account system is based on two main factors:

• Repayment of acquisition debt: for every €1 of acquisition debt repaid, €1 of capital value is allocated to individual capital accounts.
• Appreciation in the value of the shares held by the EOC: for every €1 of retained earnings at the level of the operating company, a proportionate amount is allocated to individual capital accounts. For example, if the EOC holds 30% of the company, €0.30 is allocated.

Governance: democracy, scalability and access to external expertise

A recurring concern about employee ownership is whether employees have the time and expertise required to govern a complex company. The EOCA addresses this by establishing a two-level governance structure and allowing external expertise to be included in the governance of the EOC. 

At the cooperative level, governance is democratic. Each member has one vote, regardless of the financial value recorded in their individual capital account. Members elect the president and the management board and take collective decisions on strategic matters at annual general meetings. External experts may also serve on the management board. At the company level, the EOC exercises shareholder rights in proportion to the size of the stake it holds.

The law also allows certain governance roles to be filled by non-members, subject to conflict-of-interest rules. This helps address a practical challenge during ownership transitions, which often require legal, financial and strategic expertise.

This arrangement should not be understood as anti-democratic. It allows employee ownership to develop gradually without requiring the operating company to become a worker cooperative overnight. Moreover, without adequate professional capacity, employee-owners may in practice become dependent on management or external advisers anyway. A formal and transparent role for external expertise is therefore often safer than informal influence.

Broad-based participation: the 75% rule and what it signals

A defining feature of the EOCA model is that access to its most favourable legal status depends on broad employee inclusion. The conditions for obtaining EOC status include a minimum number of members and a high participation threshold among eligible employees, commonly described as at least 75%. 

This is a significant policy choice, but it is not without precedent. The UK EOT model requires universal inclusion, while the US ESOP framework applies broad-based participation requirements to non-highly compensated employees. ESOPs, EOTs and worker cooperatives are not designed as executive share plans or narrow incentive schemes. Their purpose is to support genuinely broad-based ownership transitions in which employee ownership becomes a central and lasting feature of the company’s ownership structure. 

The tax logic: why incentives exist and how Slovenia structured them

Nearly every country in which employee-ownership conversions have reached scale provides some form of favourable tax treatment. The rationale is straightforward:

• Employee buyouts financed from future company cash flows are highly sensitive to financing costs.
• Sellers compare a sale to employees with alternative exit routes—such as strategic buyers or private equity funds—which may allow transactions to be structured more tax-efficiently.
• For employees, the arrangement must be understandable and offer a clear financial benefit.

The Slovenian Government has emphasised that the EOCA introduces a “special tax scheme” to support the development of employee ownership cooperatives, covering both personal income tax and corporate income tax.^[5] The EOCA’s tax framework can be divided into three practical categories: incentives for sellers, measures that reduce the cost of financing the buyout, and incentives that make employee benefits meaningful.

Incentives for the selling owner

A 20% reduction in the capital gains tax base. According to the Government’s explanation, an individual owner who sells shares to an EOC may reduce the tax base for capital gains by 20%. This is less generous than the UK EOT model’s original full capital gains tax relief, which was reduced to 50% in 2025, but it nevertheless provides a meaningful incentive—particularly when owners are comparing several possible exit options.

Measures that reduce the cost of financing the buyout

In a leveraged employee buyout, cash flow is critical. The EOCA addresses this in two important ways:

1. Contributions made by the operating company to the EOC are treated as tax-deductible expenses and are not subject to social security contributions, subject to statutory restrictions. The maximum deductible amount is linked to the proportion of the company owned by the EOC. 
2. The EOC may deduct 100% of the qualifying income received from the operating company from its tax base. In practical terms, the ESOP contribution is not taxed at the EOC level.

This two-level tax neutrality is important because it prevents unnecessary leakage. Without it, the same cash could be taxed when transferred from the company to the cooperative and again within the cooperative before being used to repay acquisition debt or fund employee entitlements.

Incentives for employees: clear benefits without tax on unrealised value

Many employee financial-participation schemes encounter a basic problem: they create value on paper without providing employees with cash, while potentially triggering taxation before any payment is received. The EOCA seeks to avoid this. Value credited to a member’s individual capital account is not treated as taxable income and is not subject to personal income tax or social security contributions at the time of allocation.

Tax generally becomes relevant only when cash is paid out. Payments made during membership are taxed in a manner similar to dividends, while payments made when membership ends receive treatment resembling capital gains taxation, with the applicable rate decreasing over time. A particularly favourable provision applies where the mandatory cooperative share has been held for more than 15 years, in which case the payout may be exempt from capital gains tax. 

This creates a strong incentive for long-term participation and is intended to support the stability of the employee-ownership structure.

What happens when someone leaves the company?

A practical question inevitably arises: what happens to an employee’s ownership interest when they leave the company? Under the Slovenian ESOP model, employees generally do not hold freely tradable company shares. The EOC holds the shares, while employees’ economic entitlements are expressed through their cooperative membership and the value recorded in their individual capital accounts.

When an employee’s membership ends, the value of their entitlement is determined and paid out in accordance with the applicable rules and repayment schedule. The purpose is to provide fair treatment to departing employees without creating freely tradable interests that could encourage speculative exits or undermine long-term collective ownership.

Preventing abuse and protecting long-term employee ownership

Whenever legislation introduces tax benefits, policymakers face a familiar dilemma:

• incentives can encourage adoption; but
• they can also attract transactions motivated primarily by tax optimisation rather than genuine, long-term employee ownership.

The EOCA addresses this by linking eligibility and tax benefits to continuing conditions rather than one-off compliance. Government communications explicitly describe the tax framework as support for a stable, long-term form of employee ownership. In practical terms, the law is designed to support genuine employee ownership rather than short-term corporate restructuring. Where the statutory purpose of the EOC is no longer fulfilled, certain tax benefits received at the cooperative level—though not necessarily those received by the selling owner—may be recovered through tax-clawback provisions.

Why the EOCA matters beyond Slovenia

International observers have already highlighted the Slovenian legislation as unusual in the European context because it establishes a dedicated legal and tax framework based on a specially recognised form of cooperative.^[6] Its significance lies not merely in supporting employee ownership, but in the fact that it:

• treats employee ownership as a structured business-succession mechanism rather than a minor employee benefit;
• combines tax incentives with continuing conditions intended to prevent purely tax-driven transactions;
• creates a bridge between cooperative democracy and corporate shareholding; and
• offers a potentially replicable model for other civil-law jurisdictions. Most continental European countries already have cooperative legislation. Adopting a similar framework may therefore require only the recognition of a specialised cooperative form with clearly defined standards and a dedicated tax status.

Whether the model succeeds at scale will depend on implementation, professional capacity and market uptake. Nevertheless, the legal architecture is now in place.

Final takeaway: what EOCA makes possible

The EOCA does not guarantee that employee ownership will spread rapidly or universally. It does, however, make several important outcomes possible:

• An owner who wishes to retire or reduce their ownership stake now has a clear route for selling to employees through a potentially viable financing structure.
• Employees can build meaningful economic interests without investing personal savings or taking on personal debt.
• Employee ownership can be preserved over time through a framework that connects broad participation, governance, cash flows and tax treatment.

For founders considering succession, CFOs assessing financing capacity, trade unions or works councils concerned with long-term employment stability, and advisers structuring ownership transitions, the EOCA merits careful consideration. From an international perspective, Slovenia now provides a real-world legislative model that combines the leveraged-conversion logic of US ESOPs with a European cooperative structure—an approach that had previously been discussed more often as a theoretical possibility than as enacted legislation. 

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^[1] https://www.gov.si/novice/2025-10-23-drzavni-zbor-sprejel-zakon-o-lastniski-zadrugi-delavcev/

^[2] A recent study by the University of Ljubljana found that between 35% and 50% of owners of closely held businesses are expected to exit their companies over the next ten years. https://www.gov.si/novice/2025-10-01-raziskava-podjetja-se-soocajo-s-pomanjkanjem-nacrtov-nasledstva-in-starajoco-se-strukturo-lastnikov/

^[3] https://www.nceo.org/hubfs/Expanding-Employee-Ownership-Models-Five-Countries-NCEO-2025.pdf

^[4] It is important to note that employees of subsidiaries controlled by the operating company are also entitled to become members of the EOC. This helps prevent arrangements designed to exploit the associated tax benefits. Without this safeguard, a selected group—for example, senior managers—could establish a separate company that owns and controls the operating business and then create an “ESOP” solely for their own benefit. 

^[5] https://www.gov.si/novice/2025-10-23-drzavni-zbor-sprejel-zakon-o-lastniski-zadrugi-delavcev/

^[6] https://www.nceo.org/employee-ownership-blog/slovenian-parliament-passes-coop/esop-law