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Ten ESOP Fables – Debunked – Part II

There are many misconceptions about ESOPs today, sometimes in the business press, and sometimes by professionals from various fields.  With all this misinformation and misconceptions about ESOPs, it can be difficult – if not impossible – for the average business owner to make an informed decision about whether setting up an ESOP makes sense for himself, his company, and his employees.

This is the second in a series of articles that will attempt to dispel ten common misconceptions, or fables, about ESOPs.

ESOP Fable #2: ESOPs are only applicable to very large corporations.

There is a commonly held notion that the benefits offered by Employee Stock Ownership Plans are available only to the largest of corporations. In reality, most ESOPs are found in companies with fewer than 100 employees. Of course, the larger ESOPs from companies such as Publix Supermarkets, United Airlines and W.L Gore of Gore-Tex get the headlines; but ESOPs can be found in companies with as few as ten employees.

ESOP Fable #3: If I sell to an ESOP, I will lose control of the company.

One of the major fears a business owner may have is a presumed loss of control after selling an interest in his or her company to an ESOP.  In reality, however, the ESOP Trustee is empowered to vote all of the shares of stock owned by the plan, and in most ESOP sales the selling owner will elect to be the Trustee of the ESOP, or will appoint someone to be the Trustee in whom he has complete confidence.  This means if you sell your shares to an ESOP, you can maintain full control of the company, for as long as you choose.

Only in certain circumstances, such as the liquidation of the business, do employees actually vote their shares of stock. Thus, the fear of having to consult employees and have them vote on every corporate decision is simply unfounded.

Next month’s article will tackle: ESOP Fable #4: My employees cannot afford to buy my company.

As ever, if you know of a business owner who’s thinking of selling or buying a business and who might benefit from a free, confidential, consultation with us, have them contact me directly.

By: Mike Ertel, Transworld M&A Advisors