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ESOP myths

The baby boomers transitioning out of the business world could create a new platform for business. Instead of the traditional private sale, management buyout, or taking the company to market, an ESOP (Employee Stock Ownership Plan) may be something to consider.

At the end of 2011, the number of companies that had ESOPs or equivalent plans was around 10,900 (NCEO data). Why are the numbers not higher? In many cases it is the fact that business owners and professional advisors are misinformed about how an ESOP works. Some of the myths that impede the implementation of an ESOP as a business transition strategy are as follows:

  • The owner has to leave the business
  • The owner has to give up control of the business
  • The employee owners now have the right to "know" everything
  • Employees now own stock in the company
  • Everyone is treated equally and there is no room for management incentives
  • The owner has to sell 100% of the company

All of these statements are false. ESOPs are not the answer to all business transitions, but they should be explored as an option. Make a point to get the correct information on how an ESOP works before the idea is disregarded.

-Victor Aspengren

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