Closely-Held Business Exit Strategies

For many business owners, succession planning may seem like a daunting and far-off task during the early years of growing a company. However, particularly as owners reach retirement age, it cannot be ignored. And while many business owners may assume an outright sale of a business is the best or only option, it is important to evaluate alternative options that may exist. Recently, Employee Stock Ownership Plans (ESOPs) have become a favored exit strategy which was not traditionally considered during succession planning.

While many may think of an ESOP strictly as an employee benefit plan that gives workers an ownership interest in a company, an ESOP can also create significant value for the selling business owner. In particular, an ESOP can generate a higher business valuation with more favorable tax treatment than an outright sale to a third party, resulting in higher net returns for a selling owner. A selling owner can sell or contribute some or all of his or her shares to the ESOP, giving flexibility and a stable rate of return. An ESOP sales structure also provides continuity and security for valued employees, giving the selling owner peace of mind that may not exist in an outright sale.

Wilkerson & Hegna Partner Chris Johnston has acted as corporate counsel to numerous selling owners/shareholders, and recently was corporate counsel for a closely-held company during a multimillion dollar ESOP sale and conversion that allowed the selling owner to exit the business while rewarding long-term employees. These complex transactions can provide numerous benefits to the exiting owner and their employees. Is this the right exit strategy for your business? Wilkerson & Hegna can help guide you through the process.