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The Associate Buy-in: 25%, 24%, 51% Method

  • October 2018 | by Abbott Pratt & Associates

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    Having an associate buy into a company is often one of the most rewarding moments of the selling owner’s career. The Associate buy-in can take many forms, but one method we have advised and highly recommend is a staggered purchase of the following:

    Initial buy-in of 25% ownership
    2nd buy-in at a later, predetermined date of additional 24% ownership
    Final buy-in at a later, predetermined date of remaining 51% ownership

    Benefits to the selling owner:

    • Allows for a slower transition out of the business
    • Provides for a defined succession plan
    • Spreads the tax impact of sale over multiple years

     

    Benefits to the associate:

    • Gives the associate time to adjust to the new position of owner
    • Gives the associate time to build his/her personal net worth and liquidity
    • Allows the associate time to work with the owner in an ownership roll, keeping the company’s message unified

     

    Benefits to the company:

    • Keeps the entire team in place throughout the transition
    • Avoids drastic, sweeping changes
    • Does not alarm any of the clientele who are used to direct interaction with the selling owner

     

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