When a business owner is retiring or looking for some tax breaks, selling to employees is a growing option. And one owner is on a crusade to spread the word.
An employee stock ownership plan — known as an ESOP — has been around a long time, but few business owners give it a look, said Ken Baker, chairman of the Pennsylvania Center for Employee Ownership.
“A lot of owners don’t know about this business model — and they think they have to sell to a competitor or a private equity firm or a large multinational — and this option is out there for them,” said Baker, who is also owner of New Age Industries, that makes tubing, hose and fittings at a plant in Southampton, Bucks County.
An owner can sell a small or large portion of the business to a trust, and employees can get stock in it, he said Baker.
“Through wonderful tax breaks that the federal government set up back in the 1970s, the portion of the firm that is owned by the ESOP trust does not pay taxes,” he said. “So if an employer sells 100 percent of their company to an ESOP, it would be 100 percent tax free.”
The employee stock ownership plans are a better option to ensure a company’s legacy stays around and that longtime employees still have a place to work.
It also gives financial stability to workers in their twilight years, Baker said.
“It basically creates wealth for the whole population of the firm, and I feel that is going to help out this income-inequality issue that the nation is having some issues with,” he said. “This is a wonderful tool for that.”
Wawa is a good example of an ESOP; employees of the convenience store chain have a minority stake in the company.
Baker said it can be used as a retirement investment vehicle for employees if they wait to cash out until age 59 and a half.