For business owners
Sell your business on your terms.
A team that helps owners compare every exit, whether private equity, a strategic buyer or an ESOP, and plan for the years after the sale. We have particular depth in employee ownership, an option many owners may not have considered.
By Chris Stadler
Understanding ESOPs: a tax-efficient exit path for business owners
How ESOPs work, the tax treatment and what to weigh first. PDF, 12 pages.
Tax-aware long-short strategies (TALS)
An investment approach to managing tax after a sale. PDF, 11 pages.
CPA, CPWA®, CEPA®, CRPC®
Founding Partner, ESOP & Exit Planning Specialist
President of the New Jersey Chapter of the Exit Planning Institute.
MBA, CEPA®
Vice President, ESOP & Transaction Advisory. Based in Miami.
On the board of the Exit Advisor Alliance.
Confidential, with no obligation. A member of the team replies within one business day.
Where every exit starts
The questions owners often ask us
The right answer depends on your company and what you want from the sale. Each question links to the part of this page that starts to answer it.
Three ways to sell
Your options, side by side
The best option depends on your situation and goals. We work alongside you through each step of the process to ensure your outcome aligns with your intended objectives.
Private equity
Strategic buyer
ESOP
Control after close
Typically ends at close, or is shared with the sponsor
Usually ends at close, after any agreed transition period
You can stay on as an executive or director for as long as you and the board agree
Price
Market value, often with earn-outs and rolled equity
Market value, sometimes with a premium for synergies
Up to fair market value, as determined by the ESOP’s independent trustee with an independent appraiser
How you’re paid
Mostly cash at close, plus rolled equity that may pay out at the sponsor’s next sale, or be worth less
Mostly cash at close, sometimes with earn-outs, holdbacks or the buyer’s stock
Part in cash at close, the rest often in seller notes paid over several years, sometimes with warrants that pay only if the company does well
Tax on the sale
Due for the year of the sale on the cash you receive; rolled equity can be taxed later
Due for the year of the sale on the cash you receive; earn-outs are generally taxed as they are paid
Can be deferred under §1042 on C-corporation stock if the conditions are met; S-corporation sellers can defer the gain on up to 10% of the sale price from 2028
Your employees
Often reorganized ahead of the sponsor’s planned resale
Overlapping roles may be consolidated
Become beneficial owners through a qualified retirement plan
Culture and legacy
Shaped by the sponsor’s plans for its hold period
Usually absorbed into the acquirer
Can continue as an independent, employee-owned company
Timeline
Buyer-driven
Buyer-driven
Can be staged over several transactions, subject to financing and trustee approval
Each column is a generalization. Terms vary by deal, and an ESOP is not the right answer for every company. When an ESOP is not a fit
Selling in stages
Liquidity doesn’t have to mean leaving
An ESOP separates two decisions that most sales force together: when you take money out of the business, and when you step away from it. You can make the first without the second.
Diversify
Most owners hold the bulk of their net worth in one company. A partial sale takes some of it off the table without bringing in an outside buyer, though with §1042 the proceeds stay in U.S. company stocks and bonds.
Plan your estate
An illiquid, hard-to-value stake becomes assets you and your advisors can plan around.
Fund what comes next
Capital for a new venture, a philanthropic commitment or a family goal, while the business carries on under you.
Stage your succession
Sell a minority stake now and more later, as your management team grows into running the company.
How much you can sell
As little as 1% or as much as 100%, in one transaction or several. There is no legal minimum the ESOP has to own, though its fixed costs mean very small sales rarely make sense. The 30% figure matters only for the §1042 tax deferral, which needs the ESOP to own at least 30% after the sale.
Who controls the company afterwards
After a minority sale, you can keep voting control. After a majority sale, the ESOP’s trustee votes the plan’s shares, including in board elections, and employees direct the vote on the shares in their accounts on a few major events, such as a merger or a sale of substantially all of the company’s assets. Many sellers stay on as CEO and on the board; how much influence you keep is agreed during the transaction, and it affects the price.
The tax treatment
C corporation or S corporation: the tax benefit works differently
The best-known ESOP tax benefit, deferring capital gains under §1042, applies in full only to owners selling C-corporation stock. About two-thirds of ESOPs in privately held companies are in S corporations, according to the National Center for Employee Ownership, and for them the advantage works another way.
C corporation
The benefit is yours, as the seller
- Defer capital gains tax on the sale by reinvesting the proceeds in qualified replacement property: stocks and bonds of U.S. operating companies.
- Among the conditions: you have held the shares for at least three years, the ESOP owns at least 30% of the company after the sale, and the shares you sell are not allocated to you, your family or other owners of more than 25%.
- Under current law, replacement property held until death generally receives a stepped-up basis, so the deferred gain may never be subject to income tax.
S corporation
The benefit is the company’s, every year
- The ESOP’s share of the profits is generally exempt from federal income tax, so a company wholly owned by its ESOP generally pays none.
- That cash can repay the transaction financing faster, fund growth or strengthen the plan for employees.
- New for sales after 2027: under the SECURE 2.0 Act, S-corporation sellers can also defer the gain on up to 10% of the sale price under §1042.
For an S corporation, the benefit is the company’s tax position year after year, which we work through on your own numbers.
Questar Capital is not a tax firm and does not provide tax advice. Please consult with a qualified tax professional before making any decisions.
Before you decide
Is an ESOP right for your company?
An ESOP is one option among several, and for some companies it is the wrong one. Being clear about that early saves everyone time.
Often a good fit
- Steady, predictable earnings that can support acquisition debt
- A management team ready to run the company, or growing into it
- An owner who wants the company to stay independent, with its people and its name
- An owner comfortable being paid partly over several years
- Typically at least 15 to 20 employees and pre-tax earnings of $1 million or more a year
Usually not a fit
- You want the highest possible price, including a strategic buyer’s premium for synergies. An ESOP cannot pay more than fair market value.
- You need the whole price in cash at closing
- There is no one ready to lead the company after you
- Earnings swing widely from year to year
- The ongoing costs don’t suit the company: an annual valuation, a trustee, plan administration and buying back shares from employees who leave
What to weigh
An ESOP pays fair market value as determined for its trustee, which can be less than a strategic buyer would pay. Much of the price is often paid over several years through seller notes, so you remain a creditor of the company. The company takes on debt, must buy back shares from employees who leave, and pays for an annual valuation, a trustee and plan administration. The transaction is regulated under ERISA and can be reviewed by the Department of Labor.
There is no legal minimum size. Our practice focuses on companies with $20 million to $300 million in annual revenue and EBITDA over $3 million. If you’re not sure which side you’re on, that is what a first conversation is for.
Planning before and after the sale
Some of the most valuable planning happens before a sale is agreed, and much of it continues long after. Questar is a private wealth firm first, so the team that helps structure your exit can also manage what it produces.
Because we may also manage the proceeds of a sale, we have a financial interest in transactions that produce investable assets. We explain how we are paid before you engage us, and you are free to use any advisor for the proceeds.
Prepare
Estate and charitable planning that works best before a sale is agreed, built with your attorney and CPA.
Protect
Trust and estate structures that account for the new liquidity, including replacement property you intend to hold long term.
Reinvest
Qualified replacement property under §1042 (stocks and bonds of U.S. operating companies), structured to produce the income you need without triggering the deferred tax.
Grow
Investment management for the rest of your wealth, with a dedicated team and regular reviews.
Working with Questar
How working with us starts
Many exits are decided by events rather than plans: a health scare, a partner leaving or a family decision can set the timeline. The time to understand your options is well before you need them.
1
A confidential conversation
We learn what you want from a sale, look at your numbers and compare the exits open to you: private equity, a strategic buyer, an ESOP or a transfer within the family.
2
A feasibility review
If an ESOP looks promising, a feasibility study tests it: a preliminary value range, how much debt the company can carry, and how the result compares with your other options.
3
The deal team
We bring together and coordinate the specialists a transaction needs: an appraiser, a trustee, ERISA counsel and a lender, alongside your own CPA and attorney. The trustee and its appraiser act for the ESOP, not for you.
4
The transaction
Valuation, negotiation with the trustee, financing and closing, including any §1042 election. It typically takes six months to a year from the feasibility study.
5
After the close
Replacement property, estate planning and investment management for what the sale produces, if you choose us for that work.
Talk to Gerry or Chris
Call or email either of them directly, or request a private call and we’ll find a time that suits you.
The top 7 things to consider when selling your business
A short guide for owners who are one to five years from a decision.
- What your business is actually worth
- Every exit option, compared
- Why planning starts years before a sale
- Taxes, your advisory team and life after the sale
We’ll use your details only to send you the guide.