Businesses are formed in manyways, and we have come to know those varying abbreviations (S-Corp, C-Corp,LLC, LLP, LP, LTD, and so on and so forth) that represent each varyingbusiness. But when it comes to passing on your business, there isanother acronym to consider: the ESOP.
So, what is an ESOP, what can itdo, and is it right for your business?
ESOPs, or Employee StockOwnership Plans, are a tricky breed. Essentially, an ESOP is a tool recentlyhighlighted by Congress and featured by TheWall Street Journal in an article titled â€œFounders Cash Out, but Do Workers Gain?â€Planning to exit a business is all about doing one of two things; eitherrestructuring the business or selling it outright. With an ESOP you accomplishboth goals and build the company around the very employees that compose thecompany in the first place.
Rather than going out andhunting for a buyer, the employees become vested in the stock ownership oftheir own company. In turn, the ownership stake simultaneously becomes aretirement asset while the ownership of the founder is bought out.
Now, if you are already familiarwith this approach, it may be worth reading the original article since thereare certain limitations affecting the employees-turned-owners. The articlegives examples of how an ESOP can work a win-win for all concerned under theright circumstances. These examples include Bobâ€™s Red Mill, for example, or,from a different industry, Manson Construction Co.
ESOPS have been a powerful toolin an otherwise soft market for business transfers. Accordingly, ESOPS areworth a good look, and then even a second look, as a unique and proven businesssuccession strategy.
At IdahoEstate Planning we are the expertsyou need to know and trust. Work with us and we'll put together a plan thatworks for you and your loved ones. Remember, goodplanning is no accident.