Renee Lewis is a Senior Counsel in Holland & Knight's Chicago office
Baby boomers are retiring, and for many, that means they are selling their businesses, including businesses in the food and beverage industry. The first quarter of 2016 saw the most sales of small businesses in seven years, according to an annual survey conducted by Bizbuysell.com, an internet marketplace for sales of businesses. If you are a business owner thinking about selling your business, you should consider whether selling to an employee stock ownership plan (ESOP) is an option. There are close to 7,000 ESOP companies in the U.S., according to the National Center of Employee Ownership, and many ESOP companies are in the food and beverage industry, including King Arthur Flour, New Belgium Brewing, Left Hand Brewing Company, Harpoon Brewery, Harp's Food Stores, RAM Restaurant and Brewery, KeHE Distributors, Brookshire Brothers and WinCo Foods.
An ESOP is a tax-qualified, defined-contribution employee benefit plan designed to give employees an ownership stake in their employer by investing primarily in the stock of the employer. As a tax-qualified plan, an ESOP provides meaningful tax benefits to the employer and its owners. ESOPs also can help achieve multiple corporate ownership goals and can play a unique role in employee compensation and corporate succession not achievable in traditional merger and acquisition exits.
Business owners are using ESOP for many purposes, such as:
- to create a market for owners of closely held companies who wish to sell their shares on a tax-deferred basis and allow the companies to use tax-deductible dollars to pay for those shares
- to allow shareholders with management responsibilities in closely held companies to sell gradually on a tax-deferred basis and ease out of the business over a planned period
- to affect ownership transition and provide liquidity to shareholders, in a structure that enables the company to operate free of federal income taxes, resulting in increased cash flow to service debt and grow the value of the business
- to enhance corporate performance and job satisfaction by creating a corporate "ownership" culture
- to reward employees with a benefit tied to corporate performance while affording the company substantial benefits
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.