For business owners that have also established their business as a corporation (not an option for partnerships), an Employee Stock Ownership Plan (or ESOP) may provide a better retirement option.
How you go about selling your business is completely up to you. And for most, that moment is bittersweet. Bitter because you may say goodbye to the business forever. Or bitter because you may sell yourself as an “employee” to the company you no longer own for those last years leading up to retirement. So where's the sweet part?
Alternatively, an ESOP may be an interesting option to consider to sweeten up that bittersweet decision. Curious? Take a look at a recent article in Forbes titled “How ESOPs Let Employees Take Stock In Your Retirement.”
The first question for the uninitiated (quite forgivably) is what is an ESOP? An ESOP, or “Employee Stock Option Plan,” is technically a retirement plan. However, unlike most retirement plans an ESOP effectively works to balance the retirement of the owner and the employees by balancing ownership and control.
Here is how it works: The owner essentially sells the stock of the corporation to the employees, but retains much of the corporate structure to control and run the business. In the meantime, the stock itself becomes the retirement plan for the employees who are now working to build the business that is their retirement.
Now, clearly there are some important moving pieces to consider regarding whether your business is suitable for an ESOP. When an ESOP is right, it can be a hole-in-one for all concerned. Take a look at the original article for a review of some of those “moving parts” that can make an ESOP right for a business, or a business right for an ESOP.
If an ESOP sounds like a good fit for you and your business, then be sure to get competent counsel. This is not a do-it-yourself project.
For additional information on small business law and succession planning in Houston, please visit my website.
Reference: Forbes (December 27, 2013) “How ESOPs Let Employees Take Stock In Your Retirement”