Why do business owners choose an employee ownership model as a partial liquidity event, or as a transition on retirement?

The most common reasons for choosing employee ownership are:

• Remaining independent, keeping the business focus and decision making independent of external drivers or out of region owners.
• Keeping the culture and legacy you have created as a business owner in the hands of your employees.
• Keeping the company and jobs local in the community.  After a sale to private equity or private sale, contracts are moved to the new company, jobs are terminated, and worst case the local company simply closes and ceases to exist.
• Rewarding employees who have helped create and grow the business, allowing them to participate in the wealth they have helped to create.
• In a 100% S-Corp ESOP, the trust is the sole owner, and the organization becomes a tax free entity.
• Allows the selling owners to manage the timeline of transition.  Often selling owners remain in their current positions/jobs, until they feel its time to transition out.
• For the selling owner, there are opportunities to reduce taxes on capital gains (via 1042 exchange), if seller financing is used the seller receives payout for the equity and interest on the seller note, and if the seller remains employees with the company (and doesn’t take a 1042 exchange) may receive equity in the ESOP just like any other employee.

Over the past 9-years, INCEO has been aggregating various stories of companies transition to employee ownership.  For more information please see: Why Employee Ownership?