Whether it’s months or years from now, you’ll have to make some of the most important decisions of your career:
Yes, you could sell to an external source like a strategic buyer or a financial buyer. But those options might not align with your specific goals, which is why you should consider whether an Employee Stock Ownership Plan (ESOP) could make more sense.
An ESOP is a business succession option that allows you to sell part or all of your company. The shares are placed in a tax-qualified trust, which offers your employees the opportunity to become owners of your company by vesting into shares over time.
|Potential personal capital gains tax deferral|
|Diversifying your assets|
|Keeping control for as long or short a time frame as you want|
|An ownership culture which, when properly communicated, leads to increased employee satisfaction and retention|
|A stable and predictable transition|
|A retirement plan that doesn’t require them to contribute funds|
|Thinking and acting like business owners|
ESOPs can provide tax advantages at the corporate level. Through an Internal Revenue Code (IRC) § 1042 election, a business owner can defer and potentially eliminate their personal capital gains tax.
You decide how much — or how little — of your company you want to sell over a series of transactions (if desired).
With an ESOP, you can retire over the course of months or years.
Employees of an ESOP are generally more productive, feel more rewarded and are retained longer, because they know they own the business where they work.
While an Employee Stock Ownership Plan may be appealing, it comes with a few pre-requisites. Ask yourself these questions to see if this option may be a fit for you and your company:
If you answered “Yes” to three or more of those questions, an ESOP might be worth considering.