What Business Owners Need to Know about Employee Ownership

PDF Fact Sheet on Employee Ownership for Business Owners
​Selling to your employees can provide a flexible and financially advantageous way to exit your company, while also helping to preserve the legacy of what you have built in your community. Employee ownership has been proven to work in large and small firms, in a wide range of industries, and in communities with differing economic conditions. The resources on this site cannot fully answer whether an employee-buyout makes sense for your company, but do provide information for you to begin the exploration and evaluation process. 
 
Why It Can Work
  • Significant potential tax advantages: IRS Section 1042 Rollover allows owners of closely held c-corps to defer capital gains taxes on earnings when owners sell at least 30% to employees and reinvest profits into domestically owned establishments, securities or Trust.
  • Flexible sale process: If you want a plan for retirement, but are not ready to hang up the address book just yet, converting to employee ownership can provide a flexible process for gradually existing the firm. Outgoing owners often remain company leaders after the sale is consummated, providing advice, guidance and mentorship to new employee-owners.
  • Financing alternatives: Even in current tight credit markets, conversion deals have a good track record of securing financing. Most deals entail a combination of capital sources (bank loan, subordinated debt, loan from outgoing owner, loan from company itself), and repayment can be structured in a variety of ways (e.g. fixed terms, share of profits, dividends).
  • Safeguard your legacy: If you worry that selling could put your employees and community at risk, conversion to employee ownership may be the answer. Selling to your employees can sustain the culture you have built within the firm over the years, make it far less likely that your company will suddenly move to another location, and gives your employees greater control over their economic future.

Resources for Business Owners

Becoming Employee Owned Handbook
Provides quick introduction to selling to employees through cooperative or ESOP model, benefits of each structure, and common time frame for executing the translation. 
Overview of ESOP Tax Advantages
​An overview of the pros and cons of different  types of business structures and governance of employee ownership. 
Small Business Options 
Employee ownership structures for different types of small companies.
Detailed Structure Options 
More detailed discussion of various issues surrounding choosing an employee ownership structure
Tax Advantages and Exit Strategy
An overview of the tax advantages of different ESOP buyout structures. 
Overview of Employee Ownership Structures 
​The pros and cons of different types of business structures.
Steps to Converting your Business 
A conversion road map laying out general stages of the process
Typology of Cooperative Conversions
Learn about the importance of cooperative conversions and how it adds to the industry. 

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