- Continuity. Selling to your employees through an employee stock ownership plan (ESOP) could provide the most seamless and smooth transition. Your employees will continue to work with little change except they'll build on what they already own. ESOPs typically grow gradually, as ownership share rises slowly and steadily.
- Simple and easy sale. If you sell to your employees, there’s little need for extensive financial due diligence. That also can ease stress over the transition to new owners and new management. The senior managers should already be familiar with the firm’s financial situation as well as its customers, products and competition.
- Tax advantages. An ESOP is a tax-friendly way for a small business owner to receive value for the business. There are ways to defer tax liability from the sale for several years. The company generally benefits from making a tax-deductible contribution into the ESOP. And you, as small business owner, would owe capital gains tax on your profit. That tax rate is generally lower than the ordinary income tax rate, which is what you’d pay if you took profits directly from the company.
- Employee commitment and productivity. ESOPs can be a powerful tool that can help to motivate employees to work harder and be more productive. As a result, companies with ESOPs can be very successful relative to others, as measured by revenue growth, job growth and wage growth.
- Flexible terms. The terms of the transfer of the ESOP shares can be very flexible. You could sell your entire stake in the business now, do a partial sale, or gradually sell shares to the ESOP over many years.