Business ownership doesn’t have to be an all-or-nothing concept. While it’s true that every owner will one day exit their business, there are plenty of options for a business owner who wants to stay active and involved.
Perhaps you’re looking to tap into the equity in your current business to fund new ventures, or maybe you’re planning for retirement and need to take some of your equity out of the business to diversify your assets. Or maybe you’ve reached a plateau in your business and you’re seeking a strategic partner to help you scale up. The point is that there are plenty of alternatives to the traditional business sale, including ways to take some of your chips off the table while still maintaining an ownership interest.
Options for Owners Who Want to Stay Involved
There are many ways to structure a business transaction, depending on who you want involved in the business going forward and how much ownership you are looking to divest. In general, there are four primary alternatives business owners consider.
Gift shares of the business to family members or valued employees
Gifting, by definition, means you don’t get anything in return, so this isn’t a solution for accessing liquidity.
If one of your goals is to reduce your taxable estate, gifting can be an option. The federal estate tax exclusion has been increased to $15 million per person in 2026, which means the vast majority of estates are safe from Uncle Sam’s reach. However, many states tax estates or inheritances at far lower thresholds. The Minnesota estate tax exemption ($3 million) is one of the lowest in the country.
It’s important that the shares are transferred at their fair market value (FMV). In other words, you can’t undervalue the shares just because you’re giving them to a loved one. FMV is the price at which the asset would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. However, shares of closely held businesses usually are allowed to be discounted for lack of control, lack of marketability, or both.
Larger gifts may benefit from a multi-year gifting strategy. The annual gift tax exclusion is currently $19,000 per taxpayer per recipient ($38,000 for a married couple). So, if you want to gift shares valued at a total of $300,000, then you might want to spread that gift over a period of several years to minimize the tax impact. Also be aware that the gifted shares may add some complexity to the recipient’s tax situation. For instance, they may start receiving an annual Form K-1, possibly requiring them to extend their personal tax returns. Income from the business might also kick them into a new tax bracket.
Take private equity investment
If you think the company has significant growth potential and you can’t fund it yourself, private equity (PE) can be the fuel injection you need. PE investors typically like the business owners to keep some skin in the game. An investor might buy a 75% stake in a business. They’ll make strategic improvements that increase its value, and then put the business up for sale within five to seven years. In the best of circumstances, a business owner can make more upon the eventual sale of their 25% stake than they did with the initial PE investment.
Keep in mind that there are many types of PE investors—from large institutions to family offices that specialize in longer-term holds. So shop around for an investor with values that align with your own.
Merge with a similar sized or larger company
Mergers involve an exchange of equity, so you won’t have the opportunity to access liquidity that you would with a PE investment. However, by merging with a larger competitor or complementary business, you can dramatically increase the value of your stock in the company. We’ve seen more regular merger activity in industries such as manufacturing, distribution, commercial construction, and professional services.
The downside of a merger is the potential loss of company culture. You’re not only giving up control of the company—you’re also giving up the ability to dictate “how we do things here.” That culture shift can be a shock for the management team and other long-term employees.
If you think a merger would be beneficial, make sure you’re keeping an eye on the competitive landscape. If you’ve already been approached with an unsolicited offer, take a step back to assess your company’s market value and whether another strategic partner might be a better fit before jumping into a merger with the first suitor.
Form an employee stock ownership plan (ESOP)
ESOPs are a viable alternative if your business has a large and stable group of employees. In these arrangements, the business owner maintains control of the business and is able to get some liquidity out of the business by selling shares to employees. These structures are less common nowadays than they were 20 years ago, in large part due to the complex rules surrounding them.
Lay the Groundwork for the Next Stage of Business Ownership
There are many options available to business owners, depending on their goals and desires. When you’re considering your options, take some time to think through what is most important to you.
If you’re like many business owners, legacy is important to you. You want your business to continue to support the community for years to come. Take some time to weigh your options before settling on a course that will balance short-term requirements (such access to liquidity) with your desire to keep your legacy in place.
As you’re considering your options for selling your business, reach out to the Copeland Buhl transaction advisory team. We take a tailored approach to working with each client, starting with understanding your goals and implementing a plan that best fits your unique needs. Contact us to start exploring your options for the next stage of your business.
