Michigan Estate Planning Blog

Selling Your Company to Your Employees Saginaw, MI

Sometimes the family business simply can’t stay in the family any longer. On the other hand, maybe you are not enamored with handing it over to an outsider either. If this sounds like your horns of dilemma, have you considered making your transfer in-house? When all is said and done, the only ones who know and care enough about the company may just be your employees. Sound intriguing? If yes, then you need to explore a win-win means through which your employees can become owners. Have you ever heard of an Employee Stock-Ownership Plan, or ESOP? ESOPs have been growing in popularity, especially when the market was down and outside buyers were scarce. That said, their popularity has not waned, although ESOPS can be a strange and complicated breed. Essentially, an ESOP mixes a family exit strategy with a company retirement plan. There is a great deal to it with many layers of protection regarding the operations and management of the business. Of course, there are some that are wary of the ESOP model. MarketWatch recently featured the ESOP and some criticisms of the approach in an article titled “When founder cash out, do workers lose?” Some of the criticisms are broad generalizations, especially as to the topic of valuation. Other criticisms are well taken. As the article points out, this does affect the employees by opening them up to some of the risks of actual ownership. Is this a good thing? It can mean a whole new kind of motivation and source of innovation, as many have experienced, but it can also become a tricky game of all-your-eggs-in-one-basket for employees-turned-owners. There is a reason some people have the mettle to be owners and others are content to be employees. From success stories to criticisms there are many voices talking about the ESOP. The original article is worth reading for due diligence purposes if you are on the employee side of the table. Regardless, an ESOP can be a very special tool for all parties at the table and one worth understanding and, just maybe, putting into force.

Reference: MarketWatch (May 17, 2013) “When founder cash out, do workers lose?”

For more information, see www.jerryreiflawyer.com

 

Exiting Your Business on Your Own Terms Saginaw, Michigan

Exit planning for your small business isn’t like a light switch – there is no simple on/off switch when it comes to control or ownership. It took time to build the business the right way and so it will also take proper time and planning to leave it on your own terms. Fortunately, you can structure your exit in such a way that you can lay the foundations to flip the switch in the future while retaining management control today. So, how do you structure the business so that you can start succession while still sitting on the throne? A recent Forbes article titled “How To Retain Control, Even As You Exit” provides some practical advice. At the most basic level, you may want to adjust the structure of the business itself. Is it an LLC? If yes, then retain control by making it a “manager-managed” LLC and retain the management position. Is it a corporation? If yes, then there are more options. For instance, you could issue various types of stock, either in different classes (voting vs. non-voting), or even offer restricted stock that becomes vested only upon certain conditions. The corporate structure also offers other powerful tools like Employee Stock Ownership Purchase (ESOP) arrangements. Your approach and the timing of your exit will depend on other factors, not the least of which hinges on your successors. When will they be ready to assume more control? Even more important, when will you be ready to begin relinquishing control? More often than not, you can structure an exit so both control and financial gain slowly adjust to everyone’s benefit, but you have to start with a plan.

Reference: Forbes (April
10, 2013) “How To Retain Control, Even As You Exit”

For more information, see www.jerryreiflawyer.com

 

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Exiting Your Business on Your Own Terms

Exiting Your Business on Your Own Terms Saginaw, Michigan

Exit planning for your small business isn’t like a light switch – there is no simple on/off switch when it comes to control or ownership. It took time to build the business the right way and so it will also take proper time and planning to leave it on your own terms. Fortunately, you can structure your exit in such a way that you can lay the foundations to flip the switch in the future while retaining management control today. So, how do you structure the business so that you can start succession while still sitting on the throne? A recent Forbes article titled “How To Retain Control, Even As You Exit” provides some practical advice. At the most basic level, you may want to adjust the structure of the business itself. Is it an LLC? If yes, then retain control by making it a “manager-managed” LLC and retain the management position. Is it a corporation? If yes, then there are more options. For instance, you could issue various types of stock, either in different classes (voting vs. non-voting), or even offer restricted stock that becomes vested only upon certain conditions. The corporate structure also offers other powerful tools like Employee Stock Ownership Purchase (ESOP) arrangements. Your approach and the timing of your exit will depend on other factors, not the least of which hinges on your successors. When will they be ready to assume more control? Even more important, when will you be ready to begin relinquishing control? More often than not, you can structure an exit so both control and financial gain slowly adjust to everyone’s benefit, but you have to start with a plan.

Reference: Forbes (April
10, 2013) “How To Retain Control, Even As You Exit”

For more information, see www.jerryreiflawyer.com

 

Exiting Your Business on Your Own Terms

Exit planning for your small business isn’t like a light switch – there is no simple on/off switch when it comes to control or ownership. It took time to build the business the right way and so it will also take proper time and planning to leave it on your own terms. Fortunately, you can structure your exit in such a way that you can lay the foundations to flip the switch in the future while retaining management control today. So, how do you structure the business so that you can start succession while still sitting on the throne? A recent Forbes article titled “How To Retain Control, Even As You Exit” provides some practical advice. At the most basic level, you may want to adjust the structure of the business itself. Is it an LLC? If yes, then retain control by making it a “manager-managed” LLC and retain the management position. Is it a corporation? If yes, then there are more options. For instance, you could issue various types of stock, either in different classes (voting vs. non-voting), or even offer restricted stock that becomes vested only upon certain conditions. The corporate structure also offers other powerful tools like Employee Stock Ownership Purchase (ESOP) arrangements. Your approach and the timing of your exit will depend on other factors, not the least of which hinges on your successors. When will they be ready to assume more control? Even more important, when will you be ready to begin relinquishing control? More often than not, you can structure an exit so both control and financial gain slowly adjust to everyone’s benefit, but you have to start with a plan.

Reference: Forbes (April
10, 2013) “How To Retain Control, Even As You Exit”

For more information, see www.jerryreiflawyercom