For ABA agency owners
Could employee ownership fit your agency’s succession plan?
If you are considering what happens to your agency after you step back, an employee stock ownership plan (ESOP) is one option to explore. Start with what you want for the organization, your staff and the people you serve, then compare your choices with qualified advisers.
What is an ESOP?
An ESOP is a federally regulated retirement benefit plan that can own part or all of a company. Its trust holds company shares for plan participants and beneficiaries. The IRS describes an ESOP as a qualified defined-contribution plan designed to invest primarily in qualifying employer securities. U.S. Department of Labor: employee ownership; IRS: employee stock ownership plans.
Five questions to bring to a first conversation
- What do I want the transition to accomplish? Write down your preferred timeline, your role after a transition and what continuity means for the families and staff who depend on the agency.
- What ownership stake is being considered? Ask how a partial or full transition would affect governance and future decisions.
- How will the company and shares be valued? Ask who conducts the valuation, what information they need and how the trustee evaluates it.
- What will it cost, and how will it be financed? Ask for an estimate of transaction and ongoing plan costs, and how financing would affect the agency’s cash flow.
- What would participation mean for employees? Ask who participates, how the plan operates and how staff will learn about their benefits.
The Department of Labor explains that the ESOP trust is the legal shareholder and that its trustee generally votes the shares. It also discusses valuation and fiduciary responsibilities in its ESOP guidance.