Leaving Your Business in Good Hands: A Guide to Selling to Your Employees

Written by James Walrack, ESOP Specialist


Selling your business is a complex and often emotional process that is best not rushed. Even if you’re in the early stages of succession planning, you’ve probably begun to weigh the various pros and cons of your selling options, including passing down your business to a family member or selling to a third party (we’ll cover this next month). Though often overlooked, there is a strong alternative that allows you to uphold your legacy, bolster your business, and reduce taxes. It’s an employee stock ownership plan (ESOP). An ESOP is a tax-advantaged vehicle that allows you to transfer your shares of the business to your employees. Depending on the structure and reinvestment strategy, you could indefinitely defer the capital gains taxes.

If you’re trying to decide whether an ESOP makes sense for the future of your business, consider these three points:

Considering ESOP tax advantages 

To be eligible for an ESOP, a company needs more than 15 employees and an EBITDA of at least $750,000. ESOPs take a minimum of six months to plan and execute, making them best suited for those who are looking to slowly transition out of their roles.

Due to their long time frames and the possible 2022 increase in the capital gains tax, an ESOP may be an increasingly attractive option for sellers who want to manage the significant tax burden brought on by a sale. ESOPs also offer additional tax advantages to business owners, including diversifying their personal balance sheets as well as deferring, and potentially eliminating, capital gains taxes altogether. That’s some serious money to save!

Setting your business up to thrive

After all the years and hard work you’ve put into building your business, ESOPs provide you with a tax-friendly way to step away while laying the groundwork for your enterprise to flourish without you. Enacting an ESOP means your company keeps the same management structure and workforce you originally put in place. Because you prevent the layoffs of existing employees common with a third-party sale, you leave your business in the hands of people who already understand your company culture and are likely personally invested in the ongoing success of the company.

Preserving your legacy

It’s taken years of dedication and vision to turn your business idea into the reality it is today. But selling your business to third parties who could alter the course of the company can mean that your exit is the end of your business as you know it. When you sell your business to your employees, you don’t have to worry about potential buyers misconstruing your vision. Your legacy is safe with the people who helped to establish and maintain the work culture and philosophy.

ESOPs are as viable an option for selling your business as any other considerations you may have. They come with many major benefits for the business owner, the employees, and the company itself.

As one of only a handful of banks nationwide with a specialized ESOP Group, First American Bank’s financial advisors can help you plan early and ensure a smooth transition to employee ownership. Our accessible advisors are there to help you every step of the way.

Does this sound right for you?

Connect with James on LinkedIn! 

Contact: 305-400-3334, business@firstambank.com

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Disclosure: First American Bank is a Member FDIC.

Check out more articles from First American Bank:

Four Questions to Ask Yourself When Thinking About Selling Your Business

Three Products that Protect Against Fluctuating Market Rates

Maintaining Steady Cashflow Throughout Business Cyclicality

The Healthcare Account Helping Companies Save

Liquidity Strategies for Growing Businesses

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Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.