Strategic Advice What does it mean to become employee-owned?

Employee ownership stock plans (ESOPs) are the most common structure for employee-owned companies. In an ESOP, shares are held in a trust to support your employees, who receive stock allocations as part of their benefits package. The company remains privately held, and the value of the shares is assessed annually by an independent appraiser.

An employee-owned company can be established at the early stage, transitioned after a period of ownership, or even modified through staff voting to adjust the ownership model. The 2025 update from the National Center for Employee Ownership, based on Department of Labor data from 2023, counted 6,574 ESOPs in the United States^{Disclosure 1} , up slightly from the year before but down from 6,718 in 2014. Between 2014 and 2022, total participants in ESOP plans rose from 14.05 million to 14.96 million.^{Disclosure 2}

Other employee ownership examples include:

• Worker cooperatives: Businesses owned and democratically controlled by employees
• Employee ownership trusts (EOTs): A form of indirect ownership in which a trust holds shares on behalf of employees
• Direct share ownership: A setup where employees hold company shares directly in their own names
• Stock options or equity compensation plans: A way of providing employees a stake in the business through their compensation package that may not be companywide

Employee-owned companies possess several distinctive characteristics that set them apart from traditional business models. Open communication is a cornerstone of employee-owned companies, which typically emphasize clearly and regularly sharing goals, metrics, and progress toward financial and performance milestones.

This openness often helps foster a culture of trust and collaboration. The alignment between team members and company success can enhance employee motivation, engagement, and retention, which can create a dynamic and committed workforce so your business can thrive.

Owl’s Head Alloys, a scrap metal business in Bowling Green, Kentucky, found success transitioning to employee ownership. In 2019, the company became 100% employee-owned, and its ESOP lets employees earn shares of stock in the business each year.

“We’re trying to enable people to build wealth that they might not otherwise have had the opportunity to build,” says Travis Jones, chief financial officer at Owl’s Head Alloys. “We want them to not only have a job but to create a nest egg they can tap into in the future.”

Transitioning to an employee-owned model can have significant financial implications for your company and its staff members. Owners who sell shares to an ESOP may be able to defer capital gains taxes, and companies may be able to deduct some contributions and dividends from their taxable income. For employees in an ESOP, generally taxes on the equity benefits aren’t paid until taken as a distribution, similar to a tax-deferred retirement account.

Employee-owners show higher overall job satisfaction compared to those at privately held firms.^{Disclosure 3} This heightened engagement often leads to increased productivity, reduced turnover rates, and a deeper sense of ownership and pride in your company. As a result, employee-owned businesses frequently outperform their competitors financially,^{Disclosure 4} leveraging more efficient and innovative work practices while prioritizing long-term sustainability over short-term gains. If the move to employee ownership does result in enhanced productivity and profitability, it can increase the overall value of your business long-term and may benefit everyone when it comes time to transition the business.

There are potential challenges, however. Other financial factors to consider include the ability to secure external capital. Employee-owned companies may be less attractive to investors due to concerns over a perceived lack of control in company decisions. This could limit options for financing growth and expansion. Additionally, cash flow management can pose a concern, particularly for companies that need to maintain adequate cash reserves. ESOPs require funds to pay out to staff members who leave or retire, which could impact your company’s financial flexibility.

Transitioning to an employee ownership model can also be legally and financially intricate, with setup expenses for ESOPs often exceeding $100,000.^{Disclosure 5} It can also incur substantial costs related to professional and administrative fees. And for existing owners, selling to an ESOP or other employee ownership structure may not yield the full market value of the company.

Your Truist relationship manager can help review the effect of a transition to employee ownership on your cash flow, both in the short and long term, while a Truist Wealth advisor could also help determine what the impact would be on your personal finances.

Several key factors should be considered when evaluating whether your business is prepared for employee ownership, including its financial health, organizational readiness, and your overarching goals and objectives as an owner.

To help determine readiness, you can conduct staff surveys to gauge interest in ownership. A comprehensive financial analysis and valuation of your business are key steps, as well as assessing your overall organizational structure to help identify gaps in leadership or skills is important. Consulting with experienced advisors who specialize in employee ownership transitions can also provide deeper insights into the process.

By carefully evaluating these factors, your business can more effectively determine its readiness to transition into employee ownership. It’s important to recognize that even if your company isn’t fully prepared in all areas, identifying gaps can help create a road map for future preparations.

Talk with a Truist relationship manager to help you understand the potential return on your investment and the best strategies for transitioning your company to employee ownership.