Should You Sell Employees Stock In Your Business?

Guest Post by Kayla Sloan

Implement systems that result in employees talking with customers, employees talking with each other,

When you are a business owner you must plan ahead for many different things. You need to keep a certain amount of capital in the form of cash on hand, for example. Also, you should anticipate how the market will affect your business so you can anticipate the needs of your customers.

However, there is one thing not every business owner thinks about when they first open a new business. That is an exit strategy.

When you decide you are going to retire or quit your business, you may not have a relative who will carry on the business. Most likely, the next alternative is to sell it.

What happens if you are unable to find a buyer, though, or they can’t meet your price? Should you sell employees stock in your business as an alternative?

How Selling Stock Works

As the business owner, you would create an Employee Stock Ownership Plan, or ESOP. This is sort of like a retirement plan.

The employee may receive company stock as a bonus periodically giving them a small percentage of ownership of your company. The more years they work there, the larger chunk of stock they accrue.

But this isn’t the only option with an ESOP. Employees can also purchase stock from you outright. Since not all employees have cash readily available to do that, they can get a commercial loan to purchase the stock.

The stock itself is usually the collateral for the loan and the purchasing employee would make payments to the bank.

Advantages

Turn over the Business Gradually

You may like the idea of the ESOP option because you can gradually turn over the reins of your company to one or more employees. You phase out of the business as the employees slowly add responsibility.

This method of transferring ownership is easier on both you as the seller and the buyer. Instead of an abrupt cut-off date, all parties can adjust to the changes. Thus, it ensures a smooth transition from you to the new owner.

Business as Usual

Most likely you care about your business even though you wish to sell it. After all, you have put a lot of effort and time into building it. If you are unable to pass the business on to a child or other family member, a staff member may be the next best choice.

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