Establishing an Employee Stock Ownership Plan (ESOP) is a powerful finance and employee benefit tool. While an ESOP may not be the right fit for every business owner’s situation, understanding the benefits may open the door to a valuable business transition and growth tool you need to consider.
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.
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.
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.
Small business owners continually strive to find better ways to retain and reward employees. Much can be invested over time to help create an environment of happy employees, willing to invest their best efforts each day they come to work. Yet many business owners struggle to find just the right formula to inspire their people to share in their vision for success.