Oftentimes, business owners conduct a sale to employees rather than a sale of their business to third parties. A sale to employees is often a sale to management. This is known as a management buyout. A sale to employees may also be in the form of an employee stock ownership plan (ESOP). At Frame Legal, our Charleston business lawyer guide our clients through the process of negotiating a sale to employee, the closing of a sale, and the post-closing procedures involved in the sale of business to employees.

A sale to management has advantages and disadvantages. Advantages are that employees are familiar with the business being sold and this may limit their need for full representations and indemnities. Further, selling to an employee increases the likelihood of retaining employees and the seller may be able to maintain control over the sale process.

At Frame Legal, our corporate lawyers advise our clients in the weighing of advantages and disadvantages of selling their businesses to key employees instead of selling to third parties.
Some disadvantages, however, are that selling to employees often creates distractions and, possibly, an adversarial relationship. Another disadvantage is that employees often lack financial resources and business experience. It is also possible that the employee will deflect and there will be difficulty in simultaneously marketing the sale of the business to a third-party buyer.

Financing may be another huge concern when considering a sale to employees. Many times, employees do not have the financial resources to acquire a business without third party financing. In these cases, sellers can explore three types of financing structures for an employee buyout. These financing schemes are called seller financing, employee stock option plan (ESOP), and a financial sponsor.