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For Business Owners

Ownership needs to begin thinking about what happens next well before any decision is needed. Old Harbor Advisors helps owners understand the succession paths available to them, including employee ownership, and evaluate which, if any, align with their objectives, at a pace they set.

The Right Succession Planning Depends on What Matters Most to You

What Owners Usually Care About Most

  • Liquidity and after-tax proceeds
  • Control and legacy
  • Independence
  • Continued involvement
  • Employees and their welfare
How Other Owners Decided

What Owners Who Sold to Employees Reported

In a March 2026 report, researchers at Rutgers’ Institute for the Study of Employee Ownership and Profit Sharing interviewed owners and leaders of 23 companies that sold to their employees, most through an ESOP. Many described the decision in two stages: a practical need started the search, and the comparison of paths came after. Retirement or succession was the most common starting point, for 15 of the 23; others needed to buy out a partner, keep key people or diversify their wealth.

Business Owner Perspectives on Selling to Employees: Insights from In-Depth Interviews

What those sellers valued in the decision:

  • Price. Most said selling to employees was about as financially advantageous as their other options.
  • Pace and role. Some sold in stages, began with a minority stake or stayed on to lead the company, and executive leadership keeps decision-making authority, as in other private companies.
  • Taxes. Many said tax treatment belongs in the comparison, such as deferring capital gains under Section 1042 when selling stock to an ESOP that will own at least 30%.
  • Beyond the price. Many weighed jobs, the company’s name and independence, and recognition for long-time employees.
The Cautions

What the Same Report Cautions

  • Who was asked. The owners were found through firms and organizations that help with these transitions, and the authors note the sample is not statistically representative. Owners who looked at employee ownership and chose another path are not among them.
  • A price ceiling. An ESOP can pay no more than fair market value, and a few sellers accepted less than an outside buyer offered.
  • Cash at closing. Many sellers financed part of the sale themselves and are paid over time. Earlier research found this deterred some owners who considered an ESOP.
  • Cost and upkeep. A feasibility study, an appraisal and legal work come first, then annual compliance, and the company must plan to buy back shares from employees who leave.
  • Independence is not assured. The trustee must act in the employees’ financial interest and may not be able to turn down a strong outside offer. One seller’s company later merged after a difficult period, and its ESOP ended.
  • Not every company qualifies. Practitioners cite rough minimums such as about 25 full-time employees and about $1 million in steady annual earnings. Majority ESOP ownership can end some SBA set-aside certifications, and law practices and medical offices often face restrictions.
  • Advice. More than a third first heard of ESOPs from someone other than their most trusted advisors. Sellers advised starting early, finding experienced advisors and expecting employees to take time to understand ownership.

These are points to weigh with your own advisors, alongside the other paths open to you.

Other Paths Worth Weighing
  1. 01

    Sale to a Third Party

    A sale to a strategic buyer or a private equity firm can provide sometimes the most cash at closing and, with a strategic buyer, sometimes a premium. It usually means a change of control, and the company’s name, culture, people and relationships. These sales are subject to capital gains taxes.

  2. 02

    Transfer to Family

    Passing the company to the next generation can preserve its identity and keep it in the family. It requires a willing and capable successors, careful attention to fairness among heirs and, often, a longer, owner-financed path to liquidity. It does preclude, however, the tax benefits potentially available to sellers and successor companies under current tax law.

  3. 03

    Management Buyout

    A sale to the existing leadership team rewards the people who know the business best and supports continuity. Managers often have limited capital, so the owner may need to finance much of the price and be paid over time. Buyer liquidity and future tax structure may be suboptimal.

Next Steps

Questions About Whether an ESOP May Fit Your Company?

Learn About the Process Start With ESOP 101 Learn Whether an ESOP May Fit Start a Confidential Conversation