In October 2025, Slovenia adopted a new law that will make employee ownership - and employee ownership conversions - on a clear legal and tax footing. The idea behind the Employee Ownership Cooperative Act (EOCA) is to a structured pathway for employees to become long-term co-owners of the company where they work, without requiring workers to pool personal savings or take on personal debt to buy shares.^[1]

The objective of legislation as stated in the EOCA is for the employee ownership cooperative (EOC) “to obtain and manage shares [of the operating company] with the purpose of ensuring a long-term and sustainable inclusion of majority of employees in ownership.” While the EOCA may be used to create employee incentive plans (for profit, value, and control sharing), the main purpose is to provide a new tool for exiting owners looking to transfer ownership to a new generation.^[2]

What problem is EOCA trying to solve?

Employee ownership has a long history. Many countries have experimented, with different degrees of success, different legal forms of employee financial participation and worker’s control: cooperatives, ESOPs, EOTs, share purchase plans, profit-sharing, and hybrid models. But two practical obstacles show up again and again:

1. Creating employee ownership is hard. Most start-ups are created as conventional companies, employee-owned start-ups make for a small minority of cases. A more effective strategy are conversions – creating employee ownership in existing businesses. But most employees don’t have enough capital to buy a meaningful ownership stake. Meanwhile, owners who consider a sale often prefer options that are quick, liquid, and legally straightforward - like selling to a competitor, private equity, or a strategic buyer.
2. Maintaining employee ownership is hard. Even when businesses are converted to employee ownership, it can unravel. People leave and may take shares with them. Valuations change and may impose repurchase obligations that are difficult to cover. Governance can drift toward managerial dominance. Over time, problems may be multiplied and employee ownership can collapse unless the structure is designed to manage these dynamics.

The EOCA is Slovenia’s attempt to answer these constraints with a repeatable conversion mechanism - a pathway that can work for many ordinary companies, not only for a few niche enthusiasts. To achieve that it follows very successful examples in the US (ESOP), the UK (EOT) and Spain (Mondragon cooperatives), but it also tries to address some of the problems that have posed problems to these models.

A cooperative that holds shares in the name of the employees

The EOCA creates a special cooperative – employee ownership cooperative or EOC - whose purpose is narrowly defined: it exists to acquire, hold, manage, and (under conditions) dispose of a stake in one company for the benefit of its worker-members. 

You may think of it as a collective holding vehicle. The EOC becomes the shareholder. Employees become members of the EOC. Their economic entitlements are tracked through individual capital accounts (similar in spirit to ESOP accounts and Mondragon accounts), while democratic governance operates on a one-member/one-vote logic within the cooperative.

This structure is frequently called the Cooperative ESOP^[3], because it combines:

• the leveraged buyout logic of U.S. ESOPs and U.K.’s EOTs (company-financed acquisition of shares through a dedicated vehicle), and
• a cooperative governance logic common in Europe, most notably in Mondragon cooperatives in Spain (member democracy, capped membership entry fee, emphasis on broad inclusion).

Who can use the EOCA model?

The basic structure involves three parties:

1. The selling owner(s) (individuals or entities who own shares/business interests)
2. The “operating company” (the underlying company where employees work)
3. The EOC (the intermediary that will hold the stake)

A practical detail that matters is that employees from controlled subsidiaries must be included as EOC members if EOC established at the level of the controlling company.^[4] Also, the “operating company” can be in common legal forms (including joint-stock company or limited liability company), meaning the law is designed to be broadly usable rather than restricted to niche corporate types. 

The step-by-step logic of a conversion 

Here is a simplified version of how a typical Cooperative ESOP conversion works.

Step 1: Employees incorporate a cooperative 

Employees (and eligible employees in affiliated entities) establish a cooperative that will act as the buyer. The cooperative is incorporated with statutes that define its single purpose - holding a stake in the operating company for worker-members. To keep entry broad and non-discriminatory, the law caps the mandatory membership share at €300, payable in cash, and each member can subscribe only one mandatory share. This is more important than it looks. Many employee-ownership schemes quietly become “selective” because entry requires meaningful money. EOCA explicitly tries to prevent that since membership is based on working in the operating company, not buying company shares.

Step 2: The cooperative applies for special status

Under the EOCA, the Ministry decides on granting the cooperative a recognized status of the Employee Ownership Cooperative or an EOC based on whether the cooperative statutes meet the legislative standards, and a register is kept. With the EOC status, the cooperative receives a special legal status that brings it a set of tax benefits as discussed below. 

Step 3: The EOC buys shares (generally using debt)

The cooperative acquires a stake in the underlying company - typically financed through debt. The cooperative borrows money to buy shares from the owner, where the debt is provided by a commercial bank, the underlying company itself, the seller, or another party. The cooperative becomes the shareholder without the employees needing to personally borrow or invest their own savings.

Step 4: The operating company repays the acquisition financing

The operating company provides financing streams to the cooperative. In practice, this is where the conversion becomes feasible. Repayments are funded from the company’s future cash flows rather than from employees’ current wages or savings (i.e., past wages). Government explanations emphasize that the law also regulates financing sources from the operating company and creates a basis for potential public co-financing instruments. These company contributions to the EOC are unlike dividends since they go only to the EOC, not all shareholders, and are tax-benefited.

Step 5: Employees build economic entitlements through individual accounts

As the acquisition debt of the EOC is repaid and as the value of the underlying company grows, financial claims of EOC members are recorded in individual capital accounts. The EOCA framework is designed so employees benefit from company success indirectly through these accounts and distributions. The individual accounts are the basis for membership share valuations – initial price of 300€ is thus changed based on the financial value distributed to individual accounts. The financial claims may be paid out on the go (during membership) or upon departure. 

Step 6: Ongoing governance happens at two levels

EOCA creates a dual-level governance design:

1. 1. Democratic governance in the cooperative (one member, one vote, with higher quorum required for decisions including the sale of the stock held by EOC, changes of EOC status, changes of internal rules etc.)
2. Professional management in the company continues, while shareholder rights are exercised through the cooperative’s stake

The cooperative thus acts as a “block holder,” but with internal democratic authorization about how that block is used.

Funding the cooperative: where the cash comes from

A key design choice of EOCA is that the EOC is not a normal operating business. It is a holding and distribution entity. Its cash inflows typically come from company contributions called an ESOP contribution (often the main pathway for debt repayment, also tax deductible as explained below), and profit distributions tied to the stake it holds. 

The law also explicitly anticipates debt financing and potentially blending these with public funds as permissible financing sources, which is similar to the ESOP logic in the U.S. and the EOT logic in the U.K. and Canada.

Valuation: how the price is determined and why that matters

Valuation is an important factor for the success of employee ownership conversions:

• If the seller believes the EOC as a buyer will not be able to meet their price expectations, they will not sell.
• If the price of the share would bet set to put excessive pressure on the viability of the scheme, the employees would not opt for purchasing the share.
• If the internal valuation inflates employee entitlements, future repurchase obligations may become unmanageable. 
• If valuation rules are unclear, it increases legal risk and professional cost.

The EOCA contains provisions about how acquisitions are priced and approved, and it makes room for cases where the purchase price is at or below a book-value-based benchmark.

The law tries to reduce certain tax-related valuation complications by granting special valuation options to the seller, which may – but do not need to – grant the seller to sell the stock under fair market value if the stock is valued proportional to net asset value of the operating company. Thus, the transaction between EOC and the seller may be based on:

• An official appraisal of stock based on fair market valuation.
• Balance sheet valuation of stock based on net asset value of the operating company.

Additionally, the individuation and distribution of capital value to members (through the ICA system) is based on:

• Repayment of the acquisition debt – for each 1 € of acquisition debt paid off, 1 € of capital value is assigned to ICAs.
• Appreciation of the value of stock held by EOC – for each 1 € of retained profits at the level of the operating company, a proportional value is assigned to ICAs (if EOC holds 30% of stock, 0,30 € is assigned to ICAs).

Governance: democracy, scaling, and the option of external expertise

A recurring objection to employee ownership is: “Will employees have the time and expertise to govern a complex company?” EOCA creates a dual-level democratic governance structure and allows external expertise in EOC governance to address this question. 

At the cooperative level the governance structure is democratic, where each member has one vote regardless of the current value of their membership share (the financial value assigned to their individual accounts). Members democratically elect the president and the management board (external expertise allowed on the management boards) and decide collectively on strategic issues at annual assemblies. At the company level, the EOC management board votes as a shareholder, that is, proportional to the stake it holds.

The law also explicitly allows some governance roles to be filled by non-members (subject to conflict-of-interest limitations), which helps solve a practical capacity issue in transitions: transactions require legal, financial, and strategic expertise.

This is not “anti-democratic.” The structure lets employee ownership grow gradually without requiring the operating company to become a worker cooperative overnight. Additionally, without professional capacity, employee-owners can end up relying informally on management or outside parties anyway. Designing a formal and transparent role for expertise is often safer than leaving it to informal influence.

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

A defining feature of the EOCA model is that its most favourable status is tied to broad inclusion. EOC status conditions include a minimum number of members and a high threshold of eligible employees joining - often cited as at least 75%. 

This is a major policy choice but not without precedents – the U.K. EOT model requires 100% inclusion while the legislation in the U.S. 70% requires that 70% of all non-highly paid employees are beneficiaries of the ESOP. Neither ESOP, EOT, nor the worker cooperative model is not aimed at “executive share plans” or narrow participation schemes. It is designed to support a genuinely broad-based ownership transition where employee ownership is the firm’s core ownership trajectory. 

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

Nearly every country where employee ownership conversions scale has some form of supportive tax treatment. The logic is not mysterious:

• Employee buyouts funded from future company cash flows are sensitive to financing costs.
• Sellers compare an employee sale to alternative exits, which are able to structure the transaction in a much more tax efficient way, when comparing to employee ownership initiatives (strategic buyers, PE funds).
• Workers need the deal to be understandable and beneficial.

The Government’s own communication emphasizes that the law includes a “special tax scheme” supporting the development of ownership cooperatives and that measures cover both personal income taxation and taxation of corporate income.^[5] Let’s break the EOCA tax logic into three practical categories: incentives for sellers, incentives that lower financing cost, and incentives that make employee benefits meaningful.

Incentives for the selling owner

Capital gains base reduction (20%). The government explanation states directly that the tax base for capital gains is reduced by 20% for individual owners selling to the ownership cooperative. This is not as headline-large as the U.K. EOT initial “full CGT relief” model (in 2025, this was decreased to 50% reduction), but it remains meaningful - especially in a context where owners consider multiple exit options.

Incentives that lower the cost of financing the buyout

In a leveraged employee buyout, cash flow is everything. The EOCA makes two crucial moves:

1. Contributions from the operating company to the cooperative are treated as tax-deductible expenses with no social contributions paid on them (subject to restrictions). The size of the deduction is linked to how much of the company the EOC acquires. 
2. The cooperative can deduct 100% of income received from the operating company from its tax base – the ESOP contribution by the operating company is non-taxable for the EOC.

This “two-level tax neutrality” matters because otherwise you get leakage: cash is taxed on the way from the company to the cooperative, and again inside the cooperative, before it ever reaches debt service or employee accounts.

Incentives for employees: benefits that are clear and not taxed before cash is actually paid out

Many employee’s financial participation schemes fail at the employee level for one simple reason: they create paper value without cash but still trigger taxation early. EOCA tries to avoid that. Crediting value to a member’s individual capital account is not treated as income and is not subject to personal income tax nor social security contributions. 

When cash is actually paid out, the system is designed around dividend-like taxation during membership, with favourable long-tenure outcomes. When a member exists and their membership share is paid out, the tax rate mimics the capital gain tax rate that reduces over time, where a particularly positive feature is that an exemption from capital gains tax applies, if the mandatory share in the cooperative was held for more than 15 years. 

This is a strong “stickiness” mechanism. It aims to reward staying in the cooperative project long enough for the ownership transition to become genuinely stable.

What happens if someone leaves the company?

A practical question always comes up: If I’m an employee-owner and I leave the company, what happens to my stake? In the Slovenian ESOP model, employees generally do not hold tradable shares directly, the EOC does. Employee entitlements are expressed through their cooperative membership and individual account values.

If employment terminates or the cooperative dissolves, the member receives an indexed value of the share. That might sound technical, but the purpose is straightforward. The system aims to provide fair exit treatment without creating tradability that encourages speculative exit or undermines long-term collective ownership.

Anti-abuse and durability: tying benefits to broad-based employee ownership

Whenever a law includes tax benefits, lawmakers face a dilemma:

• Benefits can increase adoption, but
• they can also attract transactions motivated mainly by tax optimization rather than durable employee ownership.

The EOCA responds by tying eligibility and benefits to ongoing conditions, not just one-time compliance. Government communications explicitly frame the tax scheme as support for a form that is expected to be long-term stable. In plain terms, the law tries to subsidize “real” employee ownership, not a short-term restructuring. For example, if the objective of the EOCA is no longer promoted by the scheme, tax benefits received at the EOC level (not by the selling owners) may need to be returned through the tax-clawback provision.

Why the EOCA is significant beyond Slovenia

International observers have already highlighted the Slovenian law as unusual in Europe because it creates a new legal-and-tax framework that is based on a special legal status of a cooperative.^[6] From a European perspective, its significance is not only that it supports employee ownership, but that:

• It treats employee ownership as a structured succession mechanism, not a minor HR benefit.
• It provides tax supports paired with conditions, aiming to avoid purely tax-driven transactions.
• It builds a bridge between cooperative democracy and company shareholding.
• It is easily replicable, as most of civil law frameworks (countries of continental Europe) already have a cooperative legislation, so the model only requires a definition of a special type of a cooperative (with a special tax status and well-defined standards for the cooperative).

Whether it succeeds at scale will depend on implementation and market uptake - but the legal architecture is now in place.

Final takeaway: what EOCA makes possible

EOCA does not guarantee that employee ownership will suddenly spread everywhere. But it makes something important possible:

• A company owner who wants to retire or reduce ownership has a clear path to sell to employees in a way that can be financially viable.
• Employees can build meaningful ownership interests without personal investments in the scheme.
• Ownership can become durable through design choices that connect inclusion, governance, cash flows, and tax treatment.

If you are a founder thinking about succession, a CFO evaluating financing capacity, a union or works council thinking about long-term jobs and stability, or an advisor structuring a transaction, EOCA is worth understanding carefully. And if you are writing about employee ownership internationally, Slovenia now offers a real-world legislative experiment that combines U.S.-style leveraged conversion logic with a European cooperative form - something that was previously discussed more as a concept than as an enacted statute. 

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

^[2] Recent study by the University of Ljubljana shows that over the next 10 years, between 35% and 50% of all owners of closely held businesses will exit: 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 workers employed in underlying companies controlled by the operating company also have the right to become members of the EOC to avoid possible manipulations of tax benefits. For example, a selected group (say managers) could otherwise spin-out a company that fully owns and controls the underlying company and create an »ESOP« for themselves. 

^[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