Business Succession Through Employees

MP900398817The 1974 ESOP law and later amendments were designed to encourage employee ownership. Company founders who initially sell just part of their stake and stay on as CEO say the best news comes after the deal: employees start to act more like owners. Ideas formerly kept quiet start to bubble up. Costs, once resistant to reduction, come under control more easily.

Once you have decided to sell your business, the million-dollar question becomes: "to whom should you sell it?" If you have no successor in mind, have you considered your employees? As many have discovered over the years, there is much to be said for selling the business to the employees themselves in the form of an ESOP or “Employee Stock Ownership Plan.”

Much has been written on the topics of employee ownership and the ESOP transition before, but a recent Forbes article titled “The Better Exit Strategy: ESOPs Satisfy Business Owners And Preserve Their Legacy” is worth your read.

When there must be an exit from the business, whether a full exit from the business or simply a way to pull out much needed capital, the exit strategy means weighing the available options. To sell the business to a larger company may mean gutting the business to only those elements the buyer wants to keep. Likewise, venture capital means distilling the business to a profit-center to be used and sold for profit.

What if you have an established business with established and trustworthy employees – employees that might make good owners? Consider an ESOP. In fact, the ESOP allows the owners to sell and the employees to buy in a tidy package that helps everyone. Moreover, it preserves the business, and the legacy of the founders. The owners can even stay on as employees themselves and continue at the helm, if the deal is structured accordingly.

Indeed, an ESOP is not a strategy suited to everyone and every business. There are some cases where it went terribly wrong. Nevertheless, ESOPs are quite an intriguing and powerful option for a closely held business. Take a look at the original article and others like it to learn more.

For additional information about business succession planning or estate planning in Houston, please visit my website.

Reference: Forbes (February 12, 2014) The Better Exit Strategy: ESOPs Satisfy Business Owners And Preserve Their Legacy


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