By Adam Wiskind
More than 5 million U.S. businesses owned by baby boomers are likely to change hands over the next 10 to 15 years. As baby boomer business owners retire and want to sell, there is a unique opportunity for a massive transition of privately-held companies to employee ownership, said Marjorie Kelly, senior fellow and executive vice president of the Democracy Collaborative.
This could be a win-win-win situation for workers, local economies and the retiring owners of these companies. Through the Fifty by Fifty project, Kelly and her colleagues set the valiant goal of enabling 50 million employee owners in the U.S. by 2050.
An ESOP has a completely different ownership structure. In this case a separate entity, a trust, acquires some portion, or sometimes all, of a company’s stock and holds it for the benefit of its employees. The company generally appoints trustees who administer the plan. The value of the shares at any given time depends on an annual independent valuation of the company. Typically employees receive the cash value of the shares in their account upon retirement or leaving the company. They never directly own the shares and only under rare circumstances can they direct how those shares get voted.
ESOPs are not cooperatives. There is no direct ownership by workers of company stock, and there is no requirement to maintain a democratic structure. Employees do not generally get the right to “vote” the shares in their account.
There are reasons that creation of employee-owned businesses has not happened faster. They are somewhat more complex to set up and operate than a conventional business structure. However, if the Democracy Collaborative is able to come close to achieving their project goal, the transition to employee ownership promises to produce a more inclusive economy and benefits for workers and retiring business owners alike.
Image credit: Pixabay
Adam Wiskind, based in the San Francisco Bay Area, is an M&A advisor to lower middle market companies with revenues between $1-$50 million. Please contact him at firstname.lastname@example.org or LinkedIn.
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