Posted byJoanne McPhail, Tuesday, September 27, 2011
I have coincidentally fielded three phone calls from clients in the past week, discussing the possibilities around selling their business to an existing employee. This can be a really good idea, provided the employee is prepared to pay fair market value for the business, and you are prepared to, perhaps, take payment over time. Often, a structured buy in can be negotiated, where the employee purchases a percentage of your shares of your business each year, slowly taking over the business. Of course, there are many issues to be considered. Even minority shareholders have rights, so you will want to be sure you have a shareholders agreement in place which sets out the rights and obligations of the shareholders, and clarifies roles. You will also have to consider how you might get the shares back if the employee, for instance, buys 10 percent of your business and then leaves or is terminated. But the employee likely knows your business and may make the perfect buyer if you can negotiate mutually agreeable terms. It’s worth a look inward to see if the buyer of your business may actually be sitting in the office next door. Thinking ahead and planning your exit strategy makes good business sense.