Employees Business Purchases

Entrepreneurs and Professionals should be careful not to overlook one potentially valuable market for sale of their business or practice: their employees.

Many small business entrepreneurs poised to retire in the next several years are looking for potential purchasers of their enterprise, which often represents their life’s work (or at least a big part of it). One obvious but sometimes overlooked source of purchasers are the employees of that very business.

It’s a great idea in concept.  These employees possess the skills necessary to continue the business, know the customers or clients, and the customers and clients are familiar with them.   These factors enhance the opportunity to retain customers and clients long after the business founder heads off into the sunset of retirement.

Plus, there are several supportive agencies available to assist an owner’s effort to sell to employees.  These agencies frequently refer to such initiatives as “Worker Cooperatives” despite the rather Cold War Soviet style connotations of that term.   There are also potential tax advantages to the parties under Internal Revenue Code Section 1042.  The requirements under that provision are not as specific or onerous as an ESOP.

An aside: the consideration of selling to employees is not exclusive to businesses.  Many professional practices we have represented have benefited from sales to partners and fellow professionals. 

A business owner (or professional) seeking to sell his or her operation is competing against thousands of other enterprises seeking to tap into the same market.  Such entrepreneurs cannot afford to ignore an employee purchase as the potential outlet for meeting their goal of a successful transition to retirement through selling the business they worked so hard to develop.

Caution: This article provides general information and is not intended to be legal advice. You should contact LAMBERT LAW if you are seeking specific legal advice regarding the topics discussed above.