What is Important to Know About Employee Buyouts and Business Succession Planning?

Suppose you are a business owner who is potentially ready to retire with no family members willing to run the organization; you are probably considering what you will do with your present company. In other instances, employers may consider employee buyout options if the business is suffering financial distress, and a buyout is seen as a viable option.

Employee buyouts can provide significant economic benefits to businesses and their employees if conducted correctly and through proper succession planning. However, failing to plan accordingly can lead all parties involved to suffer financial losses and unnecessary legal issues.

If you are interested in learning more about employee buyouts and succession planning, contact our law offices and ask to schedule a free initial consultation so that we may answer your questions.

What is an Employee Buyout?

An employee buyout, in terms of succession planning, is when employees have the opportunity to buy a majority stake in the company. In some cases, a business owner’s family members are uninterested in running the company’s day-to-day operations. In other instances, some businesses begin with the intention of being taken over by their employees.

Typically, an employee buyout occurs through an employee stock ownership plan (ESOP). An ESOP allows employees to purchase stock, which leads to them eventually acquiring ownership of the business. The shares needed to complete the buyout can take place over a specified period of time or all at once, depending on the needs and preferences of the company.

An ESOP is an excellent financial resource for businesses that wish to facilitate employee buyouts. However, establishing an ESOP can be overly complex and requires the help of a skilled business attorney.

What are the Advantages of Selling a Business to Employees?

The most obvious advantage of selling a business to employees is that the process eliminates the need for due diligence if the company were sold to a third party. Additionally, because the employee buyout process typically takes place over time, there is ample opportunity for current owners and management to implement strategies to make the transition go smoothly.

Some other significant advantages associated with an employee buyout concerning succession planning include:

• Selling to employees is less time-consuming than selling to third parties.
• Allows owners to have sufficient time to train new management teams
• Employees who buy the companies they work for already understand the inner workings of the business and clients’ needs.
• Prevents businesses from being bought by rival companies.
• Allows a well-known business to remain in the community it serves.

Nevertheless, there are many significant benefits to employees buying out of your company. Some examples of inherent risks include employees expecting you to give them a discounted rate or bad feelings from employees and former customers if the business does not succeed.

Our business succession lawyer will gladly provide you with more information regarding the pros and cons of employee buyouts and how they can figure into succession planning.

Why is Business Succession Planning a Crucial Component of an Employee Buyout?

With any business plan, succession planning is vital, so everyone understands their roles and responsibilities. In many cases, business owners finally settle on employee buyouts after exploring other options, while some owners create businesses with the intention of their employees eventually owning the company.

Regardless of why you have chosen to allow employees to purchase the business, advanced planning is critical to help avoid future legal issues or possible litigation.

The first step in allowing employees to purchase your company is to consult an experienced business lawyer who can explain succession planning and how it relates to employee buyout options.

Our legal team has comprehensive experience in assisting business owners in preparing succession plans that will protect their interests and those of their employees.

How Can Your Law Firm Help Me Successfully Plan an Employee Buyout?

Suppose you have decided to allow your employees to have the option to buy your business. In that case, you must have a qualified business succession planning attorney to assist you with your legal needs. Our law firm has a proven record of obtaining favorable results for clients.

When you choose us for your legal needs, we will thoroughly evaluate your business and any assets and liabilities to determine market value. We will also guide you through the complex process of implementing an employee stock ownership plan (ESOP).

If you want more information about our legal services and the benefits of offering stock options to employees for a buyout program, contact Venerable Law of Tampa Bay, Florida, at 813-680-4530 to schedule a free no-obligation consultation.