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Is an Employee Stock Ownership Plan Right for Your Construction Business?

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Business Management

Is an Employee Stock Ownership Plan Right for Your Construction Business?

Employees who are invested in the company's success may one day make the best leaders. That's where employee stock ownership plans (ESOP) come in

September 29, 2022
Business leader figurine standing on money in front of gold bars and letters spelling 'ESOP'
Image: Stock.adobe.com

The majority of U.S. contractors employ 20 or fewer workers, but what happens when owners approach retirement? Who should take the reins of their businesses? According to Construction Dive, employee stock ownership plans (ESOP) work well for businesses earning more than $1.5 million and can make the succession process easy for all involved.

Not only are construction companies difficult to sell to a third party, but existing employees can also maintain relationships with the company’s clients. If started early, ESOP Trusts can offer huge incentives and guarantee that construction companies are kept in the right hands, generation after generation.

Construction companies are notoriously difficult to sell to a third party. More importantly, the IRS encourages this behavior and provides huge incentives to sell to your employees. More often than not, we find that owners who sell to their employees are able to walk away with more money than from selling to a third party. This phenomenon is tightly connected to those tax benefits.

There is considerable evidence that companies owned by employees are often more productive. They have skin in the game. They are less likely to leave. They have more incentive to be productive. Interests are tightly aligned!

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