Time to Sell Your Business? An ESOP May Be the Answer

Strategy Driven

Selling one’s company to an ESOP, an employee stock ownership plan, does just that. Selling to an ESOP preserves company culture and increases productivity, which generally ensures strong future performance. How does an ESOP work? In an ESOP transaction, owners essentially sell stock, whether some or all, to employees. Often these transactions are underwritten by banks, which prefer to lend to ESOPs due to the record-low default rates.

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2020 Exit Planning Checklist

Strategy Driven

Sale to Third-Party | Sale to Insiders | Transfer to Family Members | Sale to ESOP | Absentee Owner. All business owners will stop being business owners at some point. So, there is no better time to begin planning for the inevitable than the present. The earlier you begin planning, the more options you will have for a successful exit. However, like any strategic plan, it can be difficult to know how and where to begin.

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Why the U.S. Needs More Worker-Owned Companies

Harvard Business

Some businesses with employee stock ownership plans (ESOPs) are converting into structures that more closely resemble worker co-ops. When the founder of Sun Light & Power, a solar power company based in California, created his succession plan recently, he worked with his employees to transition the company from a tax-advantaged ESOP, in which a company’s stock is bought by its workers and employees, to what they called an “ESOP-erative.”

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Profit Sharing Boosts Employee Productivity and Satisfaction

Harvard Business

For instance, individuals who become part of all-employee share ownership plans (ESOPs) are given tax breaks to own their company’s stock. The introduction of ESOPs changed the equation by giving employees a financial stake in their firm that came with voting rights and opportunities to participate in company governance. Juan Díaz-Faes for HBR. We all know that people respond to incentives.

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Huawei: A Case Study of When Profit Sharing Works

Harvard Business Review

At Huawei’s inception, Zhengfei designed the Employee Stock Ownership Plan (ESOP). The structure of the ESOP is based on two important premises. Huawei’s ESOP can satisfy both human needs. The ESOP emphasizes the idea that Huawei belongs to everyone in the company and that Zhengfei expects all employees to act like owners, with dedication and committment. The gaps between what CEOs earn and what workers do are startlingly large around the world.

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Treat Employees Like Business Owners

Harvard Business Review

And companies — except for the very smallest — can implement an employee stock ownership plan (ESOP), often funded through borrowing. Employee loyalty and engagement are hot topics, and for good reason. Companies want to attract and retain talented people who really dig into their work. But most employers ignore two of the most powerful tools for making that happen. Tool #1 is enabling employees to build real ownership in the business.

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