Employee Ownership
Employee ownership is a proven succession strategy that allows business owners to transition their company to the employees who helped build it. Broad-based employee ownership models like Employee Stock Ownership Plans (ESOPs), worker cooperatives (co-ops), and Employee Ownership Trusts (EOTs) are highly flexible, giving owners a range of options to fit their exit timeline and goals—from a full sale to a gradual transition. Thousands of businesses across the country have successfully transitioned to employee ownership, preserving local jobs, maintaining business continuity, and rewarding the employees who contributed to the company's success. For business owners considering their next chapter, employee ownership offers a practical path that keeps ownership rooted in the community while providing a fair return on decades of hard work.
Benefits of Employee Ownership
After building a successful business, owners approaching retirement often consider two key priorities: leaving a lasting legacy, and securing a fair sale price. Selling to your employees can deliver on both of these goals—and more.
- Achieve market value: Whether you are considering a full or partial sale, employees ownership transactions are built around independent, third-party valuations—so you receive a fair price for the business that supports your financial goals.
- Control your exit: As you step away from day-to-day operations, employee ownership gives you flexible control over the timeline and terms of your transition.
- Preserve your legacy: Through employee ownership, the values, culture, and relationships you built remain intact, stewarded by the people who know the business best.
- Boost revenue & productivity: When employees become owners, their deep level of engagement can drive business growth, streamline operations, and lead to better financial outcomes for the business.
- Attract & retain talent: Employee ownership offers a powerful incentive to retain current employees, and signals to prospective hires that they will have a direct stake in the company's success.
- Reward employees: Take care of the people who have worked hard to help build the business by transferring equity and building a solid career path for employees.
- Maintain local ownership: Selling to your employees keeps the business—and the jobs, tax base, and economic activity it generates—rooted in the community.
Employee Ownership Models
There are three main types of broad-based employee ownership, all of which have been around for many decades:
- Employee Stock Ownership Plans (ESOPs): ESOPs are the most common type of employee ownership in the US. Like 401(k)s, they are qualified retirement plans. ESOPs, however, transfer all or part of a company’s equity into a trust administered on behalf of the employees.
- Worker cooperatives: A worker cooperative is a company owned and controlled by employees. It is governed by a board of directors mostly composed of employee-owners who are elected by the full membership on a one-person, one-vote basis. The net profits are shared, based on a formula designed to suit the company.
- Employee Ownership Trusts (EOTs): An Employee Ownership Trust (EOT) is a trust that holds some or all of the shares of a company on behalf of the employees. An EOT ensures employees have a share in profits, a voice in governance and that the mission of the business—and its jobs—can be preserved for generations to come.
| Each of These Three Models has its Own Features and Benefits |
Employee Stock Ownership Plan (ESOP) | Worker-Owned Cooperative | Employee Ownership Trust (EOT) |
|---|---|---|---|
| Suitable Company | 40+ employees, $750K+ EBITDA | Any Size | Any Size |
| Tax Benefit to Selling Owner | Can opt for §1042 deferral of gains | Can opt for §1042 deferral of gains | No |
| Tax Benefit to EO Business | S Corp tax avoidance | Tax deduction for patronage | Tax Deduction for profit-sharing |
| Setup and Ongoing Costs | High | Low | Low |
| Flexibility of Model | Within ESOP parameters | Within coop parameters | Highly Flexible |
| Employees Buy Their Shares | No | ✓ | No |
| Employee Role in Strategic Decision-Making | Optional | ✓ | Optional |
| Partial EO Transition | ✓ | ✓ | ✓ |
| Profit Sharing Built-in | No | ✓ | ✓ |
Want to learn more about which type of EO is best suited for your company and goals? Download Project Equity’s free Three Flavors of Employee Ownership e-book.
Employee Ownership Readiness Factors
Employee ownership can be a great fit for businesses across many sizes and industries, but a few key qualities tend to signal a business is especially well-positioned:
- The company has 12 or more employees
- The company has been profitable and in good financial health for at least the past five years
- The company has an established track record, with years of experience serving its market
- The company carries minimal debt, providing room to support the transaction
Success Stories from Employee-Owned Businesses
Employee ownership is a proven model delivering powerful benefits for owners and workers in communities across the country. Listen to the stories of four businesses that have successfully transitioned to employee ownership to see the benefits in practice:
Atthowe Fine Art Services
Imagine being responsible for care-taking precious artistic and cultural treasures. Today, that responsibility is the heart and soul of Atthowe Fine Art Services business, a specialized logistics and shipping company that operates in the very niche business sector of fine art storage and moving...
The Local Butcher Shop
Project Equity was proud to assist The Local Butcher Shop, located in Berkeley, CA, with their transition to employee ownership in October 2021. Owners Monica and Aaron Rocchino wanted to transfer the shop to their employees in order to keep their legacy and mission going as they prepared to step back from the business to focus on raising their family...
Local Ocean Seafoods
We had a chance to interview Laura from Local Ocean Seafoods in Newport, Oregon to ask her about her experience transitioning to employee ownership.
Delta Pipeline
Project Equity had a chance to connect with Craig Danley, President and CEO of Delta Pipeline, Inc., who knows how businesses can be affected by hard times. In 1989, when a recession caused a lot of companies to go out of business, the company Craig had worked for since he was 20-years-old became one of them....
View additional Ownership Stories to hear more about how employee ownership can work for a business just like yours.
Get Started
Whether you're just starting to think about your next chapter or want to explore your options in detail, employee ownership experts are available to help. Schedule a free, no-obligation consultation with Project Equity for personalized advice on how employee ownership could work for your business.
Additional Resources
Whether you're just starting to think about your next chapter or want to explore your options in detail, employee ownership experts are available to help. Schedule a free, no-obligation consultation with Project Equity for personalized advice on how employee ownership could work for your business.
Succession Planning Toolkit for Business Owners
Succession Planning Toolkit for Business Owners: A practical resource to help business owners understand succession options, prepare for a transition, and explore employee ownership as an alternative to a traditional sale.
Build a Loyal and Motivated Workforce with Employee Ownership
Build a Loyal and Motivated Workforce with Employee Ownership: A free guide on how employee ownership strengthens hiring and retention, with actionable insights for business owners.
What Is an Employee Ownership Trust (EOT)?
What Is an Employee Ownership Trust (EOT)?: An introduction to EOTs as a low-cost, flexible path to employee ownership.
Employee Ownership for Manufacturers
Employee Ownership for Manufacturers: A guide to how employee ownership supports business succession and workforce retention in the manufacturing sector.
Silver Tsunami Data & Resources
Silver Tsunami Data & Resources: Data and messaging illustrating the scale of the business ownership transition opportunity and its implications for local business retention.
Ownership Opportunity Map
Ownership Opportunity Map: An interactive tool for exploring where employee ownership could expand economic mobility, with data by county, industry, wages, and worker demographics.
EO Advantage Learning Programs
EO Advantage Learning Programs: On-demand courses that equip business advisors and other professionals to identify and advance employee ownership opportunities.
EO Equals
EO Equals: National hub for employee ownership awareness raising and case studies.
CalOSBA Employee Ownership Hub
CalOSBA Employee Ownership Hub: Information and resources on employee ownership from the California Office of the Small Business Advocate.
The content and resources featured in this section are provided and maintained by Project Equity.