ESOPs as a Business Succession Tool For Small or Mid-Sized Construction/Engineering Firms

September 13, 2013Articles Construction Today

Many engineering and construction firm owners will be retiring in large numbers in the coming years. Those whose children don’t want the family business face a dilemma. With more “baby-boomer” sellers than buyers, buyers are likely to be highly selective and very parsimonious.

Employee Stock Ownership Plans (ESOPs) are a viable business succession alternative. In concept, sale to an ESOP is simple. Instead of selling to a third party, the owner sells to a trust established and operated by the firm for the benefit of its employees. To finance the purchase, the ESOP borrows from a bank or the business owner himself. The shares of the business are collateral for the loan. As the business operates, it makes contributions to the ESOP until the loan is repaid. Otherwise, the ESOP operates like a 401(k) or profit sharing plan, except that it invests in employer stock.

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