Employee Purchases

Many businesses owners explore stock sales to key employees. The current owners often become the bank in the transaction, so important safeguards need to be put in place to secure the financing.

Employee Stock Ownership Plans (ESOPs) are sometimes marketed as the solution for all succession planning. In an ESOP, assets of the business are pledged to a bank to finance the employee’s purchase of the owner’s stock. The owners can exchange their stock in a tax-advantaged way. The stock has to be valued every year. These are complex and technical transactions that can be successful for companies with hard assets, such as equipment and machinery, inventory, and land. A very careful analysis has to be completed to ascertain if the assets, management team and cash make an ESOP the right transfer vehicle.