2023 Exit Strategies: Selling Companies to Employees, Part 1

Recording available after original program date, 2/1/2023

Many closely held companies have only two potential sets of buyers – family members of the founding generation or managers and other employees of the enterprise. The market of third-party buyers for closely held companies can be very thin, so that when family members are not suitable buyers of a company, often the best solution is to sell to employees. But sales to employees are unlike sales to third-parties or family members, involving complex issues of how to finance the sale, transition management and control of the enterprise, retain key employees, and tax treatment. This program will provide you with a detailed discussion of the major issues of selling to employees, including valuation, how the sale price is financed, transition periods, retaining employees not in the buyout group, and tax treatment.

Day 1:

•    Long-range planning of sales to employees – and benefits over selling to third parties or family members
•    Negotiating with employees over sales price and valuation issues
•    Transitions of management control, including retaining seller/founder for a period of time
•    Practical governance issues when employees are identified as potential buyers

Day 2:

•    Overview of alternative structures and the tradeoffs of each
•    ESOPs – structural, practical and tax issues, including leveraged buyout options
•    Use of company redemption of founders to accomplish a transfer
•    Crucial issues in drafting “earnouts” on sales to employees
•    Seller financing options, including long-term notes and security interest in assets

Note: This material qualifies for self-study credit only. Pursuant to Regulation 15.04.5, a lawyer may receive up to six hours of self-study credit in a reporting year. Self-study programs do not qualify for ethics, elimination of bias or Kansas credit.