By Jill Nagy
\nAltek Energy Systems\u2019 president is selling the company to the employees and it will not cost them a penny, he said.
\nMike O\u2019Connor, currently the owner and a co-founder of the company, created an employee stock ownership plan (ESOP) that will hold the company\u2019s shares on behalf of the employees. As people retire or otherwise leave the company, they will receive the value of their shares.
\nShares will be allocated among the employees based upon the amount of time they have been with the company and how much they earn. Their shares will vest over a five-year period.
\nO\u2019Connor said the new corporation will be what is known as a Subchapter-S corporation. Subchapter-S corporations do not pay corporate income tax. Rather, their earnings are allocated to the shareholders and taxed as regular income.
\nAs a conventional corporation, Altek pays $400,000-500,000 in taxes a year, O\u2019Connor estimated.
\nAfter 40 years with Altek, O\u2019Connor said he sees the transition as a graceful exit strategy. It will leave the company intact and allow him to remove cash from the company. He also foresees considerable tax savings.
\nThanks to what he terms \u201cvery conservative\u201d money management, Altek had sufficient cash reserves for O\u2019Connor to receive a down payment. For the rest, he will hold a note and the company will pay him, out of its earnings, over the five-year transition period.
\nHe plans to stick around for a while, as an employee of the ESOP, but also plans to travel, spend more time with family, and perhaps spend part of the year in Hilton Head, SC., where taxes are lower and the winters are milder, he said.
\nIn the meantime, he said, \u201cI enjoy working.\u201d
\nCreation of an ESOP gives employees an added incentive to keep the company prosperous. The value of the shares depends upon the financial health of the company.
\nWhile proceeds from the ESOP will constitute an important part of employees\u2019 retirement funds\u2014in addition to providing a nest egg for O\u2019Connor\u2014it will not be their sole retirement plan. O\u2019Connor said the company already has a \u201cphenomenal\u201d 401-K investment plan into which both employees and the company contribute. That will continue, he said, but the company\u2019s matching share will decrease.
\nThe ESOP corporation will be managed by a board of directors consisting of O\u2019Connor, the company comptroller and an outside business person. That board can be enlarged to four or five members, but O\u2019Connor thinks that a three-member board is large enough for a company the size of Altek.
\nAltek, located in Waterford, has between 60 and 70 employees, varying with the season. They do heating, air conditioning, plumbing and construction work and have a fabrication shop, mainly manufacturing ductwork. O\u2019Connor founded it with two other employees but has been the sole owner since 1994.
\nThey do about $10 million worth of sales annually. He owns the building housing Altek and rents it to the company. That arrangement will continue, he said.
\nPlanning for the ESOP conversion began about 10 years ago, O\u2019Connor estimated. He investigated other exit strategies and consulted with a peer group of similar companies. Things were set back somewhat by the 2008-09 recession. Now that he has made the decision and set the prices in motion, \u201cI can highly recommend it as an exit strategy,\u201d he said.<\/p>\n","protected":false},"excerpt":{"rendered":"
By Jill Nagy Altek Energy Systems\u2019 president is selling the company to the employees and it will not cost them a penny, he said. Mike O\u2019Connor, currently the owner and a co-founder of the company, created an employee stock ownership plan (ESOP) that will hold the company\u2019s shares on behalf of the employees. As people […]<\/p>\n","protected":false},"author":196,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[30],"tags":[],"class_list":["post-35285","post","type-post","status-publish","format-standard","hentry","category-insurance-employee-benefits"],"yoast_head":"\r\n