Summary
When owners of family-owned and other closely held businesses think about retirement or exit, they weigh several considerations. They often ask themselves and their advisors such questions as: How do I cash out? How do I best handle succession, estate, and tax issues? What will happen to the business that my family members or partners, together with company employees, have built?
Owners’ choices matter. For family owners, succession and exit decisions are weighty. They have financial consequences and may be colored by family dynamics and legacy considerations. For employees, the business owners’ succession decisions are consequential as well. They potentially affect wages, benefits, working conditions, and whether their jobs continue.
There are several reasons for owners of closely held businesses to consider selling their companies to their employees through an Employee Stock Ownership Plan (ESOP), a worker cooperative, or another form of employee share ownership. Selling one’s company stock to employees represents an alternative to other common exit options. (Other common exit options may include a strategic sale to a competitor, vendor, or supplier; a financial sale; a private equity sale; generational succession; or a sale limited to senior management.)
Here are five reasons that the founders or owners of closely held businesses may choose to transition ownership of their business to employees through an ESOP or another vehicle.