Employee Transfer

Selling to a key employee or group of employees is becoming an increasingly popular option for many business owners. For exiting owners who are eager to leave their business in good hands, employees offer familiarity with the business and an in-depth understanding of how it functions. This expertise usually allows for a shorter transition time and less reliance on the exiting owner. In addition, transferring the business to an employee can save the business owner the trouble and expense of having to identify an external buyer.

While employees' capital is usually limited, banks are often more comfortable loaning to key employees than a financial buyer. The sale to employees also offers an opportunity to set up an employee stock ownership plan, or ESOP which can provide a very effective method of exit. ESOPs are tax-qualified employee benefit plans that invest primarily in stock of the employer. ESOPs can strengthen the employee commitment and may present significant tax advantages to both an individual selling the business to an ESOP and the employees participating in the plan, even when business owners intend to sell only part of the firm. Because the value of the business is based on a formal valuation, owners are more likely to receive fair market value.