If you're planning for succession, you may be weighing your options: sell to a competitor, transition to family, or bring in outside investors. But one increasingly attractive option, especially in the construction industry, is establishing an Employee Stock Ownership Plan (ESOP).

An ESOP allows you to sell all or part of your company to your employees, providing a structured exit while preserving your company's legacy, culture, and workforce continuity. Unlike a third-party sale, an ESOP offers flexibility. You have the option to phase out gradually while rewarding the team that helped build your success.

Why Construction Companies are Embracing ESOPs

Construction firms are uniquely suited to ESOPs. Many are closely held businesses with strong cultures and long-tenured employees, ideal conditions for an ownership transition rooted in loyalty and continuity. Additionally, ESOPs offer several compelling advantages:

  • Tax Benefits: There are options where owners may defer capital gains taxes on the sale, and 100% ESOP-owned S-Corps are not subject to federal income tax.
  • Talent Retention: Employee ownership can drive engagement, productivity, and retention in an industry facing skilled labor shortages.
  • Legacy Preservation: You maintain control during the transition and keep your name and values alive within the business.

How Does an ESOP Transaction Work?

The process starts with a valuation of the business to determine fair market value. Then, the ESOP trust, set up to benefit employees, purchases some or all of the owner's shares, typically funded through company loans or bank financing. Over time, the company makes contributions to the trust, which are used to repay the loan. As the loan is paid down, shares are allocated to employees' retirement accounts. The owner receives liquidity, and employees gradually gain ownership, all without needing to put in personal capital.

Is an ESOP Right for You?

While powerful, ESOPs aren't for everyone. They require careful planning, ongoing compliance, and financial readiness to manage transaction costs and future repurchase obligations. But for the right company, they offer a rare combination of liquidity, tax efficiency, and cultural continuity.

Our team has guided numerous construction businesses through this process and can help you navigate feasibility, valuation, and financial structuring. If you're starting to think about succession, are concerned about selling to an outside buyer, and want to preserve your company's legacy, contact us to explore whether an ESOP is the right fit for your construction business.