Exploring Three Employee Ownership Options for Small Businesses Planning Succession
Preparing for the Silver Tsunami: Exploring the Role of Employee Ownership
In a recent Forbes article, Project Equity CEO Evan Edwards delves into three types of employee ownership: Employee Stock Ownership Plans (ESOPs), worker cooperatives, and Employee Ownership Trusts (EOTs).
According to Edwards, ESOPs stand out to owners for their tax-saving benefits and the opportunity to deduct principal and interest payments during specific transitions. Typically favored by larger companies undergoing ownership shifts, ESOPs involve direct employee investment into their workplace. However, equity allocations and payment for ownership vary depending on the ESOP.
In worker cooperatives, every employee holds one equal voting right, which is then used to vote on decisions that concern their workplace. This promotes a more participatory and democratic work culture.
On the other hand, the EOT model can work for enterprises large and small. Employee Ownership Trusts are created with the worker in mind. Depending on the EOT, after the profits have been used to reinvest in the company, some or all of the profit remaining goes to workers. EOTs are a profit-sharing model where employees do not own any shares or equity.
As Edwards highlights, each owner and business is unique, and selecting the appropriate employee ownership model is a nuanced decision. Factors such as company size, culture and financial goals need careful consideration. By exploring and understanding these options, business owners can make an informed decisions that facilitates successful succession and fosters a more inclusive and participatory workplace environment. Ultimately, embracing employee ownership can empower workers, enhance business performance and ensure a sustainable future for small businesses.
Go Deeper:
Read the original article
Read my article on ESOPs
Check out Tiffany Vargas’s article differentiating ESOPS and ESPPs