Thinking about a partial employee ownership transition? Here’s what you need to know
- Megan Gordon
If you’re a business owner exploring your succession planning or growth options, you’ve probably come across employee ownership as a powerful path forward. But what if you’re not ready to hand over the whole business just yet?
That’s where partial employee ownership transitions come in. And the good news? They can be a smart, flexible way to start sharing ownership with your team.
So, what is a partial employee ownership transition?
A partial employee ownership transition, also known as a partial sale, means transferring a portion of your business to your employees, unlike a 100% employee buyout. It also isn’t the same as a progressive sale, where you gradually transition ownership over time. Instead, with a partial transition, you sell a portion to your employees, such as 40%.
Many owners start with selling around 30% of their business, which is a common sweet spot. It’s enough to unlock certain tax benefits and is meaningful enough for employees to feel a real stake.
If you sell less than 50% to your employees, this sale is considered a minority sale, and you retain control of the Board-level decisions of the company. If you sell more than 50%, it’s considered a majority sale, and the company’s new shareholders—your employees—have further control over the Board.
Why choose a partial employee ownership transition?
- Recruit, retain, and reward your staff: Your workers can gradually build ownership chops. Your employees will become more involved in profit-maximizings and operational improvements as they learn about the mechanics of the business and how they benefit from enhancements to the bottom line. This will help with improving productivity, hiring, and retention.
- Diversify your wealth: You’re getting some liquidity now, diversifying away from your business in the process, while maintaining control. Selling a portion of the business can reduce personal financial risk.
- Transition slowly: You don’t have to lose your identity as a business owner—you can slowly shift your role instead of dramatically walking away.
- Create a legacy: Begin building your employee-owned legacy now while you’re still there to shape it. Create a path to a full exit. You can keep your company name, employees, and location intact.
Partial versus full employee ownership transitions: What’s the right fit?
Here’s a quick snapshot of how partial and full transitions stack up:
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Partial transition
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Full transition
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Keep majority control while starting the employee ownership (EO) journey.
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A selling owner will maintain a role in governance—typically on the Board and with a seller note—but they are no longer the majority voice in decision making.
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Smaller capital event, with a plan for a full exit when the time is right. You can also have a more tax-efficient exit strategy.
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Larger capital event; typically, 60-80% of the transaction value is paid at the time of sale. Holding a seller note of at least 20% is typical for small and lower middle-market transactions.
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Gives employees more time to grow into an ownership mentality and skillset.
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Best for companies that already have a strong management team and an owner who is less involved in day-to-day operations.
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Aligns employees with an ownership mindset.
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Maximizes engagement and long-term wealth-building.
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Can be applied to any type of EO.
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Can be applied to any type of EO.
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Receive fair value for a portion of the company.
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Receive fair value for the full company.
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Questions to ask yourself
As you’re considering a partial versus full employee transition, use these questions to guide your decision making:
Personal and financial goals
- What are my short- and long-term financial goals from this transaction?
- Have I explored the tax implications of a partial versus full sale?
- What is my desired involvement with the business after the sale (e.g., none, advisory, part-time, etc.)?
- Is the business valuation high enough to support a partial sale and still meet my goals? Is it worth it to spend my money on it now?
Readiness and interest
- Would my employees have interest in ownership if I explained what EO means and how it works?
- Are there leaders within the company well-prepared and able to run the company now or in the coming years?
- How emotionally prepared am I to fully let go of ownership? Would I regret selling it all at once—or regret not taking the opportunity to move on?
- Would a partial sale to employees affect employee buy-in / commitment to EO to the future success / growth of the company?
Is partial employee ownership right for you?
If you’re curious but not quite ready to make a full leap, a partial transition could be the perfect way to start your employee ownership journey on your terms. Whether you’re looking to secure your legacy, engage your team, or ease into succession planning, this approach can check a lot of boxes.
We’re here to help. At Project Equity, we’ve supported businesses of all shapes and sizes in navigating these decisions. If you’re interested in learning more, let’s talk! Schedule a free consultation with our team and start the conversation about what partial employee ownership could look like for your business.
A partial employee ownership transition is when a business owner sells a portion of their company to employees, giving them an equity stake while the owner retains some ownership or role. This approach allows for flexibility—whether the owner wants to stay involved in leadership, gradually step back, or prepare for a full transition later.
A partial transition can preserve the business’s legacy and mission while offering flexible terms for the owner. It often keeps more value within the business and community, leverages employees’ existing knowledge and commitment, and can provide greater resilience compared to selling to an outside buyer.
