How Team Technology is doing it

Cheryl Stritzel McCarthy

Selling your company to its key employees is no more expensive or cumbersome than to a third party, said Kirsten Barron of Barron Quinn Blackwood.

Barron, a Bellingham-based business and employment lawyer, helped Patty Seaman, president and owner of Team Technology, create her plan to transfer her company gradually to its five employees, starting now and finalizing in 2026.

That measured pace serves as an educational and acclimation period, Barron said. “Nobody gets thrown in without information or knowledge. They learn how it’s managed, what comes up every year. They practice with the current owner, making decisions.”

It’s set up so the original owner retains control while bringing new owners on board.

Step by step

First, ask your employees if they’re interested in ownership. “Identify the key people who you believe have the capacity to take on the business, and have a conversation,” Barron said.

With that affirmative, at Team Technology three things took place:

1. Seaman and Barron created a shareholders’ agreement to govern operations of the company and relationships of owners. Rather than giving each shareholder an equal vote immediately, this agreement gives each shareholder a vote equal to the percentage interest. So, if the original owner has 75% ownership, she gets a 75% vote on the board of directors. “Owners typically want to maintain control until they’re fully exited,” Barron said.

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2. Seaman immediately gave a small percentage of her shares to each employee, totaling less than 5% collectively. “That creates a situation where everybody’s in,” Barron said. All employees are now shareholders, and all serve on the board of directors. It acknowledges employees’ contributions in the past and into the future, Barron said.

3. The corporation, meaning the five employees, in 2023 redeemed their first 25% of Seaman’s remaining shares. “By the end of 2026, they’ll own it entirely and (Seaman) will be entirely out,” Barron said. “I did reserve this right for Patty: Anytime she owns less than 50% of the stock, she has the right to force the corporation to buy her out entirely (making sure the purchase price is something the company can finance). Patty has the option to stay in for four years, two of which will be as a minority shareholder, or she can sell her interest to the company and say, ‘yeah, I think I’m done here.’”

Pros and cons

“Your employees likely know more about the business than a third-party buyer, which makes it more likely they’ll be successful. It’s a great way to bolster employee retention. It’s a ready exit strategy; if your employees are willing, you don’t have to go out and find a buyer,” Barron said.

Drawbacks? That depends whether the current owner wants out immediately. Barron believes this structure works better if the current owner is willing to stick around for a while.

Also, you might never know what you could’ve gotten on the open market. “Appraisals are supposed to reflect the market, but there’s always a question of whether they do,” Barron said. “If you want to get every cent out of that business, maybe this is not the path.”

Address it

“A lot of business owners don’t know how they’re going to exit,” Barron said. “Thinking about it is a good idea. Think about whether your team is a good exit strategy.

“I’d want to hire people with an ownership mentality anyway … and treat them like that.”