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May
28

Is Selling Your Business to Your Key Employees/ESOP the Best Way to Sell it?

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Is it right way to selling your business to key employees?Best Way to Sell Your Business

Once a business owner decides to sell their business, the most difficult choice is how? The choices are many, a fire sale, liquidation, passing it on to heirs, or selling it to the key employees of the company…the list can be overwhelming and confuse anyone. One of the preferred ways to sell out a business is considered to be selling it to the employees/ESOP as it is very flexible and has tax advantages.

Many business owners do not completely understand the implications of ESOP and feel that it is more in the benefits of the employees rather than being a buyout aid.

There are quite a few benefits to ESOP:

  • The transaction is not structured by the employees or the management, but by the company itself
  • The evaluation of the company’s assets is done by an independent professional rather than by one of the involved parties
  • All the shares don’t have to be sold at the same time, there is an option for the shareholders to choose between selling at the time or later or even sell the stocks on a pro-rata basis and they will still hold the balance for any appreciation in the future
  • There are tax benefits but the business owner needs to check them to get the latest information when they decide to go ahead with the option
  • The business owner does not have to completely lose control of the company as there are options to only sell a part of the company while still retaining control, so for those who are looking at making a sale to cover expenses, but do not want to let go of their business, this options suits the need
  • The employees involved in the process are motivated as their ownership increases a lot and this also impacts the business in a tremendously positive way
  • Provides further security to the employees as they now hold stock options, which makes them look at better ways to make the company more successful
  • Companies owned by employees have a high percentage of success wherein the profits are better, the employee turnover is very low, and the growth is faster because it is those who have worked hard in the company who now have a bigger stake in it, these businesses perform better than non-employee owned ones.
  • ESOP provides additional benefits to those employees who have been a big part of the company since a long time and have played key roles in its survival and success

Conclusion

Selling your business to your employees may feel like sharing the control of the company and having to collaborate with others where you were the sole responsible person earlier, however for some, this is a better options as it not only keeps the business still with you. It keeps the business alive, and benefits the business in many different ways which may just be the change it needs. So while making the decision to sell out your business, weigh your options and find out what this option would offer you as per the current laws, make an informed decision.

Categories : Blog, Tips/Articles

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