Discover how the Slovenian ESOP works
What is the sloESOP?
The Slovenian ESOP is an innovative model for establishing and maintaining employee ownership in companies. It was developed on the basis of best international practices from Western economies and adapted by the Institute for Economic Democracy to the specific characteristics of the Slovenian business environment.
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sloESOP builds on decades of international experience and draws inspiration from the ESOP model in the United States and the Mondragon cooperatives in Spain. Based on academic research and practical improvements, the IED has further developed these successful practices and introduced several innovations designed to address some of the shortcomings identified in international models.
Basic features of the sloESOP
Ownership through a separate legal entity
Employees exercise their ownership rights through an Employee Ownership Cooperative, enabling ownership to remain in the hands of successive generations of employees over the long term.
Gradual, leveraged buy-out
The acquisition of the ownership stake is financed from the operating company’s available cash flow, giving all employees access to ownership regardless of their personal financial circumstances.
Right to capital value
Through individual capital accounts, employees acquire an interest in the value of the company, encouraging long-term commitment and investment in its development.
Tax incentives and legal certainty
The Employee Ownership Cooperative Act (EOCA) provides the legal framework for the ESOP model and offers tax benefits to owners and employees.
Stages of the sloESOP transaction
Transfer of ownership
The seller transfers the stake they wish to sell to the employees to the employees’ co-operative (LZD), which then borrows the funds to finance the purchase price either from the seller or from an external lender. A financing agreement is concluded between the operating company and the LZD, which specifies the amount of the annual ESOP contribution that the operating company will allocate to the LZD to repay the debt.
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In greater detail…
- Employees establish an Employee Ownership Cooperative (EOC), a special form of cooperative designed to acquire and manage a stake in the company in which they work. To obtain EOC status, the cooperative must have at least five members, and, at the time of application, at least 75% of all employees who meet the statutory membership requirements must be included. Membership is based on the principle of “one member, one vote”. The EOC has a president and, if it has ten or more members, a management board.
The seller transfers the stake they wish to sell to employees to the cooperative. The cooperative finances the purchase by borrowing from the seller or an external lender. A central issue at this stage is the valuation of the company: the purchase price must strike a balance between the seller’s expectations and the company’s financial capacity. An excessive price or an overly short repayment period may place pressure on the company’s liquidity, investment and future development.
- The EOC enters into a financing agreement with the parent company, setting out the amount and schedule of the company’s payments to the EOC (the so-called ESOP contribution). The EOC uses these funds primarily to repay the debt incurred in acquiring the ownership stake. Under the EOCA, the ESOP contribution, up to the statutory limit, is treated as a tax-deductible expense of the operating company, while for the EOC it constitutes tax-exempt income.
Individualisation of ownership
The cooperative uses the ESOP contribution to repay the debt owed to the seller or an external lender. As the debt is repaid, value is gradually allocated to employees’ individual capital accounts. Changes in the value of the ownership stake are reflected in the capital accounts.
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In greater detail…
- When allocating profits, the board of the parent company takes account of its contractual commitments relating to the financing of the ESOP acquisition. The amount of financing depends on the company’s available cash flow. Where no free cash flow is available, financing may be temporarily suspended. The cooperative primarily uses the funds it receives to meet its obligations to the seller or another lender.
- The EOC may maintain three types of capital accounts. The debt incurred when acquiring a stake in the parent company is recorded in the (1) transitional account. A (2) individual capital account is maintained for each EOC member, recording the value of their capital entitlements. The cooperative rules may also establish a (3) collective capital account, which records value to which individual employees are not directly entitled. Its purpose is to reduce future payment obligations towards employees and ensure the financial sustainability of the model.
- Debt repayment is gradually reflected in the wealth accumulated by employees through the EOC. Individual capital accounts, and, where established, the collective capital account increase in proportion to the repayment of the debt. Employees determine in the cooperative rules the proportion of value allocated to individual capital accounts and to the collective capital account. In doing so, they must take into account the company’s capital intensity and financial capacity, since the value recorded in individual capital accounts represents a future obligation of the EOC towards current and former members. The method for distributing value among individual capital accounts is defined in the ESOP’s internal rules. Distribution may be equal for all members, based on employees’ relative salaries, or linked to their length of service with the company. Once the EOC has fully repaid its debt to creditors, the entire ownership value is allocated between employees’ individual capital accounts and the collective capital account.
- Changes in the value of the ownership stake are reflected in the capital accounts.
Long-term maintenance via the "Roll-over" system"
After the acquisition debt has been repaid, the parent company continues to make ESOP contributions to the cooperative in accordance with the agreement. The cooperative uses the portion of these funds intended for employee payments to pay out the oldest allocations recorded in individual capital accounts. The value paid out is then redistributed among the individual capital accounts of active members according to the selected distribution method.
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In greater detail…
- At the end of the second phase, every member of the cooperative has an individual capital account recording the value of their capital entitlements. Members cannot freely dispose of this value. Instead, it is paid out gradually, in accordance with the cooperative’s rules and the company’s financial capacity.
- The operating company continues making ESOP contributions to the cooperative after the acquisition debt has been repaid. During the third phase, the cooperative uses these funds to make payments from employees’ individual capital accounts. Value is paid out according to the FIFO principle—“first in, first out”—meaning that the oldest allocations are paid out first.
- The value of the allocations paid out is subsequently redistributed among the individual capital accounts of active members in accordance with the distribution method defined in the cooperative’s rules. This allows newly hired employees who join the cooperative to begin accumulating value, while existing members can gradually convert part of their accumulated value into cash and reduce their financial exposure.
When an employee’s membership in the cooperative ends, no additional value is allocated to their individual capital account. The value of their capital entitlements on the date their membership ends is subsequently paid out gradually under the same rules. This system allows ownership to remain in the hands of successive generations of employees over the long term, while payments are adapted to the financial capacity of the parent company and the cooperative. The departure of individual employees therefore does not in itself require the sale of the company’s ownership stake or jeopardise the continuity of employee ownership.
Advantages of the sloESOP model
Improved business performance
When implemented correctly, employee ownership can lead to better business performance.
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Research indicates that employee-owned companies:
- more productive;
- more resilient and stable in times of crisis;
- have more engaged and loyal employees.
The best results are achieved by companies that systematically develop all of the following elements when transitioning to employee ownership:
- Employees must understand ownership. Financial literacy education and the development of an ownership culture are therefore essential. They should receive structured and accessible insight into the financial indicators needed to understand how their work contributes to business results.
- Employees must have opportunities to participate in decision-making. Employees should be actively encouraged to contribute ideas for improving work processes.
- Employees must to benefit from good decisions. Employee ownership ensures that the value created is shared among everyone who contributes to the company’s success.
Preserving
jobs
A transition to employee ownership supports employment stability within the local community.
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Thousands of Slovenian business owners will need to find a solution for transferring ownership of their companies in the coming years. At present, as many as 75% do not have an appropriate succession plan. Which path will they choose? The ESOP model expands the range of options available to Slovenian business owners for addressing ownership succession. Choosing an internal buyout through an ESOP means choosing to preserve business continuity and jobs while allowing the company’s story to continue within the local community. It also enables ownership to pass to the workforce that helped create the company’s success.
All in the same
boat
Employee ownership creates an ownership structure in which this familiar expression can truly become a reality.
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sloESOP promotes the broad inclusion of employees in the ownership programme. In doing so, it brings to life the vision that everyone in the company is in the same boat: when the workforce rows in a coordinated manner, at pace and in the same direction, the company can achieve outstanding results that bring financial benefits to everyone who contributed to them.
Actively involving employees in developing proposals for improving work processes and sharing the value created with employees are central foundations of a successful transition to employee ownership.
ESOPs around the world
Slovenia
Denmark
Australia
Ireland
United Kingdom
Canada
United States of America
The ESOP model has a long tradition in USA, where it has received statutory support since the adoption of the Employee Retirement Income Security Act in 1974. US ESOP plans currently include approximately 15.1 million participants, around 10.9 million of whom are active employees. Since 2019, an average of 269 new ESOPs have been established in the United States each year.
In the United Kingdom , the Employee Ownership Trust model received statutory support in 2014. It has since become one of the most established options for addressing business succession. By June 2026, almost 3,000 employee-owned companies had been recorded in the country, with the large majority of new transitions taking place through the EOT model.
Canada introduced a legal framework for Employee Ownership Trusts in 2024.
In Slovenia, the ESOP model has been supported by law since 1 January 2026, when the Employee Ownership Cooperative Act came into effect. New legislation also took effect in Denmarki on the same date, enabling companies to be transferred to employees under more favourable tax conditions.
Support for Implementing Employee Ownership
Transitioning to employee ownership can be a demanding process. Specialised knowledge and experience are therefore essential for a successful ownership transfer.
The Institute for Economic Democracy established Solastnik.si incubator to provide companies with comprehensive professional support during their transition to the ESOP model.
Would you like to find out whether an ESOP is suitable for your company? Visit Solastnik.si and book an individual consultation with our experts.
Frequently Asked Questions (Q&A)
Is the sloESOP Model Suitable for Our Company?
An ESOP buyout is an ideal solution for owners who want their succession plan to preserve the company’s business continuity and identity while rewarding the workforce that contributed to its success. An ESOP can also enable ownership to be transferred over a shorter period, although it is generally advisable for owners to withdraw from the company gradually, usually over a period of five to ten years.
Where only a minority ownership stake is transferred to the ESOP, the model may also function as an employee incentive scheme. za zaposlene.
Who Provides the Loan for an Ownership Buyout Under the sloESOP Model?
An ESOP enables a leveraged buyout, meaning that the acquisition of the ownership stake is financed through a loan, which is gradually repaid from the company’s future cash flows.
The loan may be provided by the seller, who agrees to receive the purchase price gradually over several years. Part of the financing may also be obtained from external lenders, enabling the seller to receive an immediate payment.
Will Employees Value Ownership if They Do Not Pay for the Shares from Their Own Savings?
Under the ESOP model, employees do not finance ownership directly from their personal savings. However, this does not mean that they have no meaningful role in repaying the acquisition debt. The acquisition is financed from the company’s future cash flows. The speed of debt repayment and the growth in the value of employees’ entitlements are therefore directly connected to the company’s long-term performance.
Employees must understand how the model works, how their work contributes to business results and how the company’s success is connected to the value allocated to them through the ESOP. Education programmes and the development of an ownership culture play an important role in this process.
What Are the Risks?
The central risk associated with sloESOP arises from the use of financial leverage to acquire the ownership stake. Credit risk is generally assumed by the lender—the seller or an external financier—while a poorly structured financing arrangement may also place pressure on the company’s liquidity, investment and development.
At the IED, we devote considerable attention to reducing this risk, particularly by establishing a sustainable financing structure that does not jeopardise the company’s operations.
Available data from the United States indicate that loans used to finance ESOP acquisitions have historically recorded low default rates. An analysis of 1,232 leveraged transactions between 2009 and 2013 identified an annual default rate of approximately 0.2% for defaults that resulted in losses for creditors. An additional 0.6% of loans per year were restructured but were subsequently repaid according to revised repayment schedules.
These figures do not mean that ESOP acquisitions are free of risk. They do, however, indicate that the risks associated with financial leverage can be significantly reduced by following good practices and involving experienced professional advisers.
Why Can't I Include Only Key Employees?
The sloESOP model is based on broad employee participation, because the success of a company is generally created by the workforce as a whole, rather than only by individuals in senior or particularly prominent positions.
Research indicates that employee-owned companies achieve the best results when employees at all levels understand their role as owners, participate in improving work processes and share in the value created. Broad participation therefore strengthens shared responsibility, engagement, innovation and the company’s resilience during periods of crisis.
Can I Choose Which Employee-Ownership Implementation Processes to Introduce?
The IED is a professional organisation that implements employee ownership in accordance with recognised principles and leading practices from Slovenia and abroad. We ensure that the models are inclusive and designed for the long term and that they are accompanied by all necessary supporting processes. These include financial literacy and ownership-culture education, as well as the introduction of processes that give employees structured opportunities to submit constructive proposals within clearly defined parameters.
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