Good Reasons To Establish An ESOP

On Behalf of Ezell Law Firm, LLC

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Nov 11, 2019

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Buying Or Selling A Business

Business owners who are looking to sell their companies may want to consider selling them to their employees. To do so, a company can establish an employee stock ownership plan, or ESOP. An ESOP allows an interest in the business to be held in a trust for the employee’s benefit. When the CEO is ready to step down, the ownership stake is transferred to those who are beneficiaries of the trust.

There are many reasons why a business owner would want to sell his or her company to its workers. One reason could be to instill a greater sense of loyalty in an organization’s workers. Loyal workers tend to be more productive and less likely to leave, which cuts down on turnover. Furthermore, selling a company to the employees means that the transition to new ownership can be a gradual one.

Finally, using an ESOP means that there is less work to do before the sale closes. This can make it easier for the current owner to walk away from an organization without a lot of hassle or drama. Those who create an ESOP should expect to retain control of the company for at least five years. It may be more beneficial for larger companies as there are more employees to help cover the cost of the acquisition.

The process of buying or selling a business can be a complex one that may require a team of professionals. Ideally, a business owner will include an attorney on that team who has experience with these types of transactions. This may make it easier to create an ESOP properly or otherwise evaluate offers to purchase the company. An attorney may also be able to help structure a deal in a way that minimizes taxes or other potentially negative consequences.