It’s Business, And It’s Personal

Employee stock plans an option for business transition

On Behalf of | Jun 7, 2018 | Buying & Selling Businesses |

Some business owners in North Carolina may want to look at an alternative idea for transition upon retirement or career change – selling the company to employees. The use of an ESOP or employee stock ownership plan has been available to owners for years, but is rarely used when business owners look for sales option. In many cases, business owners sell to a larger company, an equity firm or a competing business. However, the owner can also sell the business for market value to a trust in which employees can buy stock.

Selling a business to an ESOP is rewarded under federal tax laws; the portion of the company owned by the trust is not taxed. In addition, advocates of ESOP plans note that they provide greater security and stability to workers. By selling to an ESOP, a company is more likely to remain a going concern rather than being absorbed into a larger entity. In addition, some companies sell a minority share to an ESOP trust while owners retain the majority share. In this case, the ESOP can also be a means for employees to invest for retirement by purchasing the stock of a valuable company.

One well-known company that uses an ESOP is Wawa, the mid-Atlantic convenience store chain. The ESOP is frequently cited as a driver of employee loyalty and commitment to the company. In addition, this structure provides a mechanism for employees to benefit directly from the value that they bring to the company, which can be a substantial morale boost.

Entrepreneurs have much to consider when buying or selling businesses. After building a company, the next steps taken can be critical for securing retirement for the owner as well as the funds for their next venture. A business law attorney may be able to help company founders to consider next steps and review contracts when planning to transition their firm.