It is official: Pew Research reports until 2029, America’s baby boom generation is turning 65 at a rate of 10,000 a day.
When a business is sold to a third party, the buyer generally prefers to purchase a company’s assets rather than its stock, whereas the seller would rather sell the stock. As a result, the decision of asset sale or stock sale is often subject to the negotiation process. A very powerful benefit of selling to an ESOP is that an ESOP transaction is always a stock sale.
Today’s blog article focuses on what information should be shared to ensure you keep employee owners’ attention. My previous blog article, The Secret Ingredient in Employee Ownership, highlighted how to engage employees through creating a sense of value among your employee owners through the following four key emotions: enthusiasm, inspiration, empowerment, and confidence.
We have been exploring the many benefits of selling to an ESOP, including how selling to an ESOP can increase after-tax proceeds by over 40%, and selling to an ESOP enables a business owner to sell in 90-120 days.
The IRS has announced the 2018 pension plan limits, including the following:
- 401(k) Deferral Limit - $18,500
- Annual Additions Limit - $55,000
- Maximum Compensation Limit - $275,000
- Catch-Up Contribution Limit - $6,000
- Highly Compensated Employee - $120,000
- ESOP 5-Year Distribution Threshold - $1,105,000
- ESOP Additional Year Threshold - $220,000
We have previously discussed how selling to an ESOP provides a built-in buyer that can purchase the company in as little as 120 Days. Another benefit is that the seller can sell to an ESOP for full fair market value of the company (but not more than fair market value) as determined by an independent appraiser. The protection provided by the Internal Revenue Code to engage an independent appraiser protects the ESOP participants and ensures that the full fair market value of the company is used in the determination of the sale price.
October is always an amazing time of the year as the weather changes from the warmth of Summer to the crispy cool temperatures of Fall. These seasonal changes remind me of the transitions we all face no matter the industry we work in. As things change, we can’t forget to look back and remember the past and where everything initially started.
We have been discussing some of the many benefits of selling to an ESOP including how selling to an ESOP creates a built-in buyer and how selling to an ESOP can increase after-tax proceeds by over 40%. In addition to the higher after-tax return, selling to an ESOP can provide additional ways to add additional consideration and benefits for the selling shareholder above and beyond the sale proceeds.
When a business is sold to a third party, the buyer generally prefers to purchase a company’s assets rather than its stock for liability and tax reasons. Selling to an ESOP is always a stock sale which is more favorable from a tax standpoint than a traditional asset sale. When analyzing the purchase price, it is essential to consider the after-tax proceeds when comparing an ESOP transaction sale to a third-party sale.