I Want to Sell My Company But No One's BuyingJanuary 13, 2011
Are you one of the many business owners out there who have been planning a sale of your company but can’t find any buyers as a result of the current economy?
Are you one of the many business owners out there who have been planning a sale of your company but can’t find any buyers as a result of the current economy? Maybe there’s a solution to your problem in the form of an Employee Stock Ownership Plan or ESOP.
Tracing their roots as far back as 1973, ESOPs are a well known but often misunderstood business ownership structure that can provide liquidity to business owners. The concept is not to be confused with a stock option plan commonly established to compensate executive level employees. Instead, an ESOP is a tool that allows business owners to sell all or part of their ownership interest to their employees using debt.
The topic is frequently married with a discussion of the numerous tax benefits an ESOP can provide which includes repaying ESOP debt, principal and interest, with pre-tax dollars. There are other benefits which may include being able to find a ready buyer for your shares, the possibility of more favorable financing terms and the advantages of avoiding the strenuous, time consuming and often expensive process of selling your company through an investment bank or business broker. There are also the cultural benefits of employee ownership which may lead to higher profitability.
Sometimes business owners don’t want to give up control of their company but are interested in diversifying only some of their shares. An ESOP can help here too! In fact, many ESOPs are set up as minority owners so that existing business owners can take advantage of the ESOP tax benefits available to their company while enjoying the benefits an employee ownership culture. Also, if structured correctly, the business owner may be able to defer any capital gains taxes associated with the sale of these shares.
Although not all companies qualify and sometimes those that do find the IRS rules too restrictive, an ESOP is still an option often overlooked by business owners. With the help of a qualified accountant and attorney to help demystify the world of ESOPs, it might be worthwhile to find out if an ESOP makes sense for your company.