Anyone Know What Happens When an Employee Owned Company Goes Bankrupt and Sold?
I'm a dealer for a product made by an Employee Owned Company. They went bankrupt in march (started in 1967) and were bought out by a large national company with similar interests that will be helped with this product line.
It shouldn't really hurt my business because they want business as usual but I am curious how a situation like this ends up. Do the employees end up with the buy out money as their equity allows? I'm sure the company assets and property have value.
If they filed bankruptcy then any proceeds from a sale will go to pay creditors.
I suppose that if anything were left, it would be distributed to the employees. However, in most cases the proceeds fall well short of what is owed, let alone paying any principals.
There are several different kinds of employee owned companies.
In some, the employees own regular stock. The most common, however, is called an ESOP- an Employee Stock Ownership Plan- and most of these are set up so the employees are given special stock, which is often highly restricted. I was once employed by a company that had an ESOP- and, in our case, we could not vote or sell our stock, but the original owners of the company got paid for their shares, which they then "gave" to us. They got cash, but still kept 100% control of the company. This is a very common way to set up ESOP's.
It allows founders to extract cash, without losing control, and to shuffle tax burdens to the employees.
But when my company went bankrupt, we, the employees, got nothing- our stock became worthless. Of course, when we got the stock, we had to pay tax on it as income... The creditors played out the normal bankruptcy proceedings in court, the few owners who had voting stock made any last decisions, and, in our case, another company bought the name and the hulk, and its still in biz today.
In most cases, it makes zero difference in terms of a bankruptcy, if its an ESOP or not.