Employee ownership is becoming a hot topic among builders because it offers aging business owners an exit strategy with a distinct advantage: no capital gains tax.
Forming an employee stock ownership plan (ESOP) has other pluses:
- It motivates employees by giving them a stake in the company, forcing entrepreneurial thinking.
- It lets the business owner control all terms and conditions of selling the firm rather than having a buyer dictate the process.
Martin Staubus, director of consulting at the Beyster Institute, a nonprofit organization that provides the information entrepreneurs need to pursue employee ownership strategies, says i's amazing ESOPs are not better understood by builders, especially since 10 of America's top 100 employee-owned companies are construction firms.
"This form of ownership transition meshes so well with many home builders' goals," he says. "You really negotiate the transition terms with yourself. You can sell a little or a lot, do it all at once or slowly, over a long time. Perhaps the best advantage is that it lets an owner see the company he's built up over a lifetime continue beyond his retirement with the corporate culture pretty much intact."
"If you sell a company valued at $5 million to a public company, they give you most of the sale price in their stock. That's not taxable, but you're still holding paper that can go up or down in value. If you want to cash it in, the 20% capital gains tax bill comes due. An ESOP lets you take the money from selling your company and reinvest it however you want. You can diversify your investment and avoid the capital gains tax completely."
For more, visit www.beysterinstitute.org.