In a previous blog post, Succession Planning Strategies for the Retiring Small Business Owner, partner Marc S. Schechter discusses options for a retiring small business owner in California with regard to what to do with their company, particularly small business owners selling the company to their employees.
In a recent Small Business Administration (SBA) blog post, 7 Tax Strategies to Consider When Selling a Business, the SBA emphasizes that 6 out of 10 owners plan to sell their businesses within the next decade. An option for succession planning included in the blog post is to consider selling the business to employees by way of an employee stock ownership plan (ESOP) as a tax consideration:
“If your business is a C corporation and you plan ahead, you can sell your business to your staff through an employee stock ownership plans (ESOP). The ESOP is owned by employees (find more information about ESOPs from the IRS). From an owner's perspective you have captive buyers and don't have to search around. You set a reasonable price for the sale and receive cash from the ESOP. You can then roll over the proceeds into a diversified portfolio to defer tax on the gain.
You can also use ESOPs for S corporations, but the deferral option for an owner doesn't apply. Revoking an S election in anticipation of a sale is something to consider.”
Click here to read the entire SBA blog post.
If you need help with succession planning for your business or are a small business owner looking towards retirement, you should consider all succession planning options. If you have any questions about how an ESOP can help your business or other succession strategies, the law firm of Butterfield Schechter LLP is here to help. We are San Diego County's largest law firm focusing its law practice on employee benefits law. Contact our office today.