Rick Kozlowski

Rick Kozlowski


(802) 864-5756

rkoz@lisman.com

vermontestateplan.com

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Transitions to Key Employees

A business often has key (long-term) employees who are candidates for assuming ownership upon the owner’s retirement, disability or death.  The transition to key employees has a few special considerations.

Unlike the transition to a family member, the owner normally wants to receive full value for the business.  Nevertheless, because key employees have usually rendered years/decades of loyal service, the owner may be inclined to accept a somewhat lower price for the business, and be more flexible about the structure of the financing.  Questions regarding key employees are similar to those concerning family members:  are the key employees ready to assume the primary management role?  Do they have the skill set to operate the business in the owner’s absence?  If the answer to these questions is uncertain, transitioning the business to key employees may not be the best choice.

Unlike the transition to a third party, the owner may be more comfortable financing the transition and remaining involved for some period of time.  Since key employees are likely to know the ins and outs of the business, the risk associated with a sale to them is reduced (they are less likely to make mistakes that would injure the business).  Often, the owner will provide some, or even all, of the financing, especially where the sale to a third party would be difficult (given the type of business).  In such cases, the owner is wise to obtain as much security as possible:  liens on real estate, assets and inventory, as well as personal guarantees by the key employees (and their spouses). 

If you have any questions about planning this type of transition, feel free to contact me by accessing the information at the left.

 



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Transitions to
Family