With many baby boomer entrepreneurs in their 60s, many are contemplating their exit strategy. While many will consider selling their business or passing it on to their children, there is another way.
While this strategy does not receive much attention, it represents a viable way to pass along the business and cash out at the same time. Why not sell the business to your employees who have a vested interest in the success of the firm going forward?
By far the most common form of employee business ownership in the U.S. is an Employee Stock Ownership Plan (ESOP). Even though this strategy was almost unknown until 1974, 7,000 companies have employed an ESOPs covering 13.5 million employees as of 2014.
While companies can use ESOPs for a variety of purposes, ESOPs are most commonly used to provide a market for the departing owner’s shares, motivate and reward employees, or to take advantage of tax incentives to borrow money for acquiring new assets with pretax dollars.
An ESOP allows your employees to use their income to buy out the shares in the company.
