Host: Joseph Lewin

Guest: Tim Rettig — Founder & CEO, Intrust IT • Second-Generation ESOP Owner • ESOP Advocate

This show was originally aired on Aug 28, 2024 on LinkedIn.

📌 Episode Snapshot

Joseph and Tim unpack how selling a company to your employees—through an ESOP (Employee Stock Ownership Plan)—can create financial freedom for founders, long-term wealth for teams, and lasting stability for the business. Tim explains what ESOPs are, how they work, and why they’re one of the most overlooked exit strategies in business.

This show was produced by Sell Through Social.

🎯 What Is an ESOP?

• Definition: An Employee Stock Ownership Plan is a trust that owns part (or all) of a company on behalf of its employees.
• The company’s profits go to the trust, which pays off the loan used to buy the business from the owner.
• Employees earn shares over time, but aren’t personally liable for any company debt.
• Think of it like a 401(k)—but tied to your company’s performance, not Wall Street’s.

💡 How It Works (Simplified Example)

• A company worth $10M can be sold to an ESOP trust.
• The ESOP borrows the money, pays the owner, and then repays the loan using future company profits.
• The employees earn stock value as the company grows—without risk or personal investment.
• Owners can sell any percentage (10%, 30%, or 100%), making it flexible for partial or full exit.

🧩 Why ESOPs Aren’t More Common

• Complex setup: Legal and financial structures are specialized.
• Few incentives for advisors: CPAs and brokers often make more money selling to private equity.
• Low visibility: It’s not “sexy,” but it’s highly effective—especially for manufacturing, construction, and IT service companies.
• ESOPs work best for companies with 30+ employees and $1–2M+ EBITDA.

💰 Benefits for Employees

• Gain ownership and wealth—without risk or buy-in.
• Typically earn higher pay, better benefits, and greater job stability.
• Build a third major asset for retirement (in addition to home equity and 401k).
• ESOP shares increase as company value grows. When employees retire or leave, the company buys back their shares at fair market value.
• Legally protected: the company must begin buybacks within 5 years of departure.

🧮 Benefits for Business Owners1. Massive Tax Advantages

• The seller can defer or eliminate capital gains tax through a 1042 Exchange (similar to a real-estate 1031).
• Example: Selling a $10M company could normally mean ~$4M in taxes. Under a 1042, that money can be reinvested into public or private U.S. companies tax-free.
• Heirs also receive a step-up in basis, avoiding capital gains on inherited assets.

2. Ongoing Tax-Free Profits

• When structured as an S-Corp ESOP, the ESOP trust owns shares—and pays no taxes on that percentage of profits.
• Example: A company that’s 30% ESOP-owned pays taxes on only 70% of profits.
• Fully ESOP-owned S-Corps pay zero federal corporate tax—a 21% profit advantage over non-ESOP peers.

3. Flexibility + Legacy

• Owners can sell gradually (partial sale first, then more over time).
• Ensures a smooth succession plan and keeps the company’s culture and jobs intact.
• Builds a long-term legacy of shared success rather than selling to private equity.

🧱 Real-World Example

• Tim’s father sold 100% of his company to an ESOP in 2004 when he retired.
• Tim later sold 30% of his own IT company to an ESOP to reward employees while staying active in leadership.
• Since then, employee retention increased, and the company’s share value doubled in five years.

📊 Why It Works

• Employees think like owners. They see the connection between performance and retirement wealth.
• Retention and engagement skyrocket. Workers stay longer and contribute more.
• Profit reinvestment fuels growth. With tax savings and a motivated team, ESOP companies often grow faster.
• Tim’s example: $2M in acquisitions led to $6M in added company value—and employees directly saw that reflected in their ESOP accounts.

📚 Where to Learn More

• Connect with Tim Rettig on LinkedIn.

🗣️ Memorable Lines

• “ESOPs align everyone’s incentives—employees, owners, and the company all win together.”
• “You can sell 10%, 30%, or 100%—it’s not all or nothing.”
• “Private equity extracts; ESOPs empower.”
• “Selling to your employees lets you keep your legacy and your team.”
• “It’s one of the few systems where doing what’s best for yourself is also best for everyone else.”