KINGSTON, R.I. – Sept. 22, 2025 – According to data from the U.S. Chamber of Commerce, more than 96% of American enterprises are classified as “small businesses.” It’s often noted that small and family businesses are the backbone of the U.S. economy. These businesses play an outsized role in shaping local communities and contributing economically.

But what happens to those businesses when the patriarch or matriarch either steps down, passes away or is forced to retire? In many cases, a private equity firm acquires the company, or ownership is transferred to a relative.

But there is a third, less conventional option that is quietly gaining traction: employee ownership. In this instance, the head of the business sells the company to their employees ensuring that the business is maintained and that the founder’s legacy lives on. 

This often works well because employees generally understand the business.

“Take a restaurant for example, employees already know a lot of the customers, the menu, and the business strategy,” says Jegoo Lee, a professor in the College of Business at the University of Rhode Island.

It’s a concept that has drawn increasing attention from academics and policymakers alike. Lee, who studies all things business management, was recently appointed to a state task force that is helping to explore the potential of employee ownership as a viable succession strategy. 

The task force, created by Rhode Island Lt. Gov. Sabina Matos, is made up of entrepreneurs, business leaders and academics. The aim is to aid and develop policies for small business owners on the brink of retirement who may be interested in maintaining their legacy by potentially selling their business to their employees. 

“We have lots of small businesses in Rhode Island,” says Lee. “But think about it, what if they’re all sold off one by one? After 5, 10 years, we won’t have any more small businesses.”

Lee says there are major benefits to employee-owned companies, they not only perform better, they also do well for the planet. His research reveals that these firms lead the way in environmental sustainability. What’s more, employee ownership culture fosters stronger customer-oriented responsibility.

In recognition of his research, Lee was invited to co-host a conference sponsored by Harvard Business School’s Institute for Business in Global Society, focused on employee ownership. It brought together more than 30 prominent voices in the field of business, academia and government to discuss different types of worker ownership, their benefits and challenges. Among the presenters was Sabina Matos.

Still, the path to employee ownership is not without obstacles. One of the primary challenges, Lee explained, is the scarcity of accessible information regarding the transition process. While employees may be adept at managing day-to-day operations, they often lack exposure to the financial, legal, and strategic dimensions of ownership.

Encouragingly, Rhode Island’s legislature has already taken proactive steps when it comes to succession plans. A bill is currently being discussed that looks to define what an employee-owned business is and what are some potential parameters when it comes to succession.

“We also hope the legislature will consider a possible tax incentive,” says Lee.

The task force’s next milestone involves developing educational materials, toolkits and holding information sessions.

As the task force continues its work, the broader conversation around employee ownership is poised to expand, offering a compelling alternative for those seeking to preserve not just their business, but a legacy they built.