Why an ESOP Can Be a Perfect Exit Strategy for Business Owners
Establishing an Employee Stock Ownership Plan (ESOP) can be an excellent exit strategy for business owners and a great alternative to an outright sale.
ESOPs allow owners to gradually transition out of the business while maintaining its continuity. This can be less disruptive than selling to an outside buyer. Owners may benefit from significant tax incentives, such as deferring capital gains taxes on the sale of their shares if the ESOP owns at least 30% of the company after the transaction. Owners can structure the sale to occur over time, providing greater flexibility in managing their exit and succession. An ESOP ensures the company remains in the hands of employees who are invested in its success, preserving the founder’s legacy and company culture.
While an outright sale provides an immediate payout, an ESOP can deliver significant long-term value. The gradual growth of the company’s value benefits both the employees and the selling owner, who may retain some equity during the transition. This shared success aligns everyone’s interests, creating a win-win scenario.
In summary, an ESOP is more than just a financial transaction. It’s a strategic decision that combines financial rewards, legacy preservation, and employee empowerment. At ASL, we work with many business owners who successfully transitioned ownership to an ESOP. If you are interested in discussing an ESOP as an exit strategy in more detail please contact Jeff Faust, Principal of Valuation Services. Jeff has over 30 years’ experience working with ESOPs can help you determine feasibility on a high level and discuss whether an ESOP is right for you and your business.
About the Author
Jeff Faust
Jeff Faust, CVA, is the Principal of Valuation Services at ASL. He has over 25 years of experience in the valuation of privately held companies…
