FREQUENTLY ASKED QUESTIONS

A way of selling a business to the people who work in it, rather than to a family member, a competitor, or an outside investor. There are three established structures in the United States: Employee Stock Ownership Plans (ESOPs), worker cooperatives, and Employee Ownership Trusts (EOTs). All three are real sales at real prices — they differ in how ownership is held, governed and taxed.

There are roughly 154 employee-owned companies in the state: about 137 ESOPs and about 17 worker cooperatives. Nationally there are more than 6,500 active ESOPs representing over 14 million employee owners, more than 750,000 of them in North Carolina, plus over 465 worker cooperatives.

An ESOP is a retirement plan, somewhat like a 401(k), except the invested dollars go into the company where the employees work. It carries real tax advantages: if the company is an S Corporation, whatever portion is owned by the ESOP — provided that is 30 percent or more — pays no federal or state corporate income tax, so a 100 percent ESOP-owned S Corp is generally tax-exempt. If the company is a C Corporation at the time of sale, the selling shareholder can defer capital gains taxes indefinitely by selling at least 30 percent of the shares to the ESOP.

A worker cooperative is governed democratically. Employees elect the board, and each employee owner holds one and only one voting share. Cooperatives suit smaller companies, and companies that want workplace democracy as an end in itself rather than only as a financing structure.

An Employee Ownership Trust is newer here, though well established in the United Kingdom. The company is owned by a trust the selling owner establishes, with the requirement that all profits above what the business needs for reinvestment go to employees. Employees are beneficiaries for as long as they work there. Some owners choose a perpetual trust so the business stays employee owned indefinitely. EOTs lack the ESOP tax benefits but cost significantly less to create and administer.

Not for the reason people assume. Employee ownership transactions are market-value transactions, and they begin exactly where any sale begins: a feasibility study, then a professional valuation establishing what the business is actually worth. That number is the basis for negotiation whoever the buyer is.

There is one genuine difference. An outside investor buying your company as one of several they intend to combine may pay above fair market value, because the company is worth more to them than it is on its own. If maximizing the sale price is your single goal, that is worth knowing.

No. Owners can sell a portion and keep the rest, and many do — selling in stages is common, and it lets an owner step back gradually rather than all at once. The 30 percent threshold matters for the tax treatments described above, but it is a threshold, not a requirement to sell everything.

An ESOP is a regulated retirement vehicle overseen by the Department of Labor under ERISA, which makes it the most expensive option. Setup costs commonly start around $250,000 and can run higher, with ongoing fees for a trustee, a third party administrator, and an annual valuation. That overhead generally makes sense for larger companies. For an S Corporation the tax savings can offset it.

EOTs and worker cooperatives are far cheaper — very roughly $20,000 to $70,000 — and carry no annual valuation requirement. A smaller company is not shut out of employee ownership; it usually means a different model.

Think in years rather than months. The transaction itself is only part of it; most of the work is getting the business ready to run without you, which is where the timeline really goes. That preparation is not wasted even if you eventually sell elsewhere, because it makes the company a better buy for any purchaser.

That is a normal answer, not a disqualifying one. Readiness means moving from owner-dependence to operational independence: documented processes, books somebody other than you understands, a leadership pipeline, and institutional knowledge that lives outside your head. If you are not there yet, a good first step in North Carolina is your local SBTDC office, where a counselor can assess where you stand and lay out a strategy and timeline.

In an ESOP, no. Employees do not purchase shares; the plan acquires them, and shares are allocated to employee accounts over time. Worker cooperatives vary — some ask members to buy a membership share, and the terms differ from company to company, so it is a fair question to ask yours directly.

In an ESOP, once the selling shareholder and the associated loans are paid off, a portion of annual profits is allocated to employee retirement accounts. It is a long-horizon benefit rather than a bonus, which is why it is described as a retirement plan.

It depends on the model. A worker cooperative is governed democratically, with employees electing the board. In an ESOP or an EOT, day-to-day management usually continues much as before, with ownership held by the plan or trust. Companies that get the most out of employee ownership tend to pair it with genuine transparency and a culture where people can make decisions without checking upward for everything — but that is a choice a company makes, not something any of the three structures guarantees.

Nothing. We are a 501(c)(3) nonprofit serving the entire state, and our role is to provide unbiased information about succession options. A conversation costs nothing and commits you to nothing. Plenty of owners we talk to decide employee ownership is not the right fit, and that is a useful answer too.

No. We are not advisors, brokers, or a party to any deal. We help you understand the options and, when you are ready, point you toward professionals who specialize in this work — appraisers, feasibility and structure specialists, attorneys, trustees, third party administrators. We take no fee for those introductions and we do not represent any of the firms on our list.

Yes, and it is one of the more useful things we do. We can introduce you to executives at North Carolina companies that have already converted, so you can hear how it went from someone who has been through it.

Our mission is North Carolina, and that is where our programs, partnerships and staff are focused. We are part of a national network, so if you are elsewhere we can usually point you to the center or organization that covers your state.