a recent article discussed another option for business owners who are looking to selling their business but are concerned about retaining their employees.

However, according to Terry Monroe, one item that was not mentioned was that an ESOP is an excellent vehicle to be used by a business owner who knows they have a good business that is very likely to grow. The owner sells a large portion of the business to his employees in a non-taxable transaction—and still retains control over the business. It is like owning a business worth $10M and you take $4M out of the business not paying any taxes.

“Normally to do this, you could get a loan against the business, which is tax free, but more than likely you would still be personally liable for the loan and you then let the company pay the loan back. But instead of doing this, you sell 40% of the business to your employees and they are part of the ESOP and the ESOP gets the $4M loan and pays you the money tax free. The ESOP is then on the hook to pay back the $4M. You then have an agreement where over time the ESOP will buy out the rest of your interest in the business all tax free. The value of the company may have actually been $12M, but it was reduced to $10M to allow the business to become an ESOP, but the tax rate if you would have sold the business was 40%—so in the long run, even after lowering the value of the company, the owner of the business comes away with more money in their pocket and is still in control of running their business,” says Monroe.

Terry Monroe (www.terrymonroe.com), is founder and president of American Business Brokers & Advisors (ABBA) and author of Hidden Wealth: The Secret to Getting Top Dollar for Your Business. Monroe has been in the business of establishing, operating, and selling businesses for more than 30 years. As president of ABBA, which he founded in 1999, he serves as an advisor to business buyers and sellers throughout the nation. His knowledge and expertise in multi-store operations and sales has led to many multimillion-dollar transactions. As an expert source in the convenience store industry, he writes a routine “Financial Insights” guest column for Convenience Store News and has been featured in numerous publications, including The Wall Street Journal, Entrepreneur magazine, CNN Money, and USA Today.