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Most business owners are proud of the business they built. They care about their company’s legacy and its ability to thrive after they retire. They care about the employees who have helped build the company. In many cases, a business is truly an entrepreneur’s “baby.”
So, when we discuss the issue of selling an entrepreneur’s business (as we frequently do), it is an understandably emotional topic. A common, if not pervasive, theme we hear is that entrepreneurs are hesitant to sell their company to competitors or outside investors who are not devoted to the business and its employees. Rather, owners would love the opportunity to sell their business to the employees who helped it grow and thrive… if only this were economically possible. Well, through an employee stock ownership plan (“ESOP”), it may be possible.
ESOPs enjoy support from both political parties and, as is relevant heading into tax season, their income tax-free nature is beneficial to both the business and its owners, the employees. You read that correctly – no tax at the corporate level, no pass-through tax at the shareholder level. No income tax. Period.
Although ESOPs are growing in popularity (there are about 7,000 in the United States), many business owners are unaware of the extensive benefits. Whenever we discuss ESOPs with clients and prospective clients, the feedback is almost always positive. We have worked with hundreds of clients that have installed ESOPs and virtually every one of them is thrilled with the result. So, we are trying to spread the good word! Some of the unique advantages that an ESOP can provide include:
- Sell the company easily, quickly and privately, all while receiving fair market value
- Create a completely income tax-free company
- Reward and motivate employees with ownership
- Transfer ownership all at once, or in pieces
- Build a powerful ownership succession plan
- Lock in low capital gains tax rates on the sale, and perhaps even eliminate gains tax on the sale
Please let us know if you have an ESOP success story you’d like to share, or if you’d like to talk with us about the exploring the potential of installing an ESOP at your company.