ESOP No Fable, but Viable Exit Stratgy
"One of the great ironies of entrepreneurship is that many people spend years building their companies, only to undo all of that work at the very end by deciding to sell the business to the wrong person. Decisions like that don't have to be made, especially today. Employee stock ownership plans, or ESOPs, have become a mainstream alternative for business owners who wish to sell their business but want it to remain largely intact...
Legally, an esop is a tax-qualified retirement plan. It borrows money to buy the owner's shares, then allocates them to employee retirement accounts as the loan is paid off. In certain circumstances the selling shareholders can defer capital gains taxes...
But selling to the employees? Will the inmates be running the asylum?
The legalities are clear and reassuring to nervous managers. The business runs as usual, with the CEO and the board in charge. The ESOP shares' votes are in the hands of a trustee, who is appointed by the board, just like the CEO. What's not so clear are people's expectations...
One key to success is educating employees about what it means to be an owner. Yes, you will benefit in a major way if the company makes money and grows; here's how. No, you don't get to tell your boss what to do, and no, you aren't automatically entitled to know what she makes..."
Read more The Ultimate Employee Buy-in from Inc.com.
