If you are looking to retire and lucky enough to own a business, you may be looking for creative options to sell your business. As such, an Employee Stock Ownership Plan (“ESOP”) may be a viable option to accomplish this task.
An ESOP is a special type of retirement plan that purchases stock of the business where the employees work. For example, if XYZ, Inc. establishes an ESOP, the primary holding of the ESOP would be XYZ, Inc. stock.
A typical ESOP structure is as follows:
- Company established ESOP
- Company borrowed $ from bank and/or sellers
- Company loaned $ to ESOP
- ESOP issued promissory note to company
- ESOP paid loan proceeds to sellers
- Sellers’ transferred stock to ESOP
Although selling to an ESOP may not get you all of your money immediately, it has potential to meet more of your transition goals. If your goals are to see the business continue to operate, have jobs for your employees, be able to eliminate your day-to-day worries about the business and ultimately receive fair market value for your stock, this may be a good choice for you.
Keep in mind, typically an ESOP works best for companies with very little debt, over 20 employees and profits of more than $500,000/year.
Horizon understands the special requirements of acting as an ESOP trustee, and we frequently speak and author articles on ESOPs. As such, we would be happy to discuss the option with you. Please contact Tracy Woolsey at 219-874-9235, Dale McAllister at 219-873-2622 or Dave Van Ness at 317-805-4703 for more details.