Selling to Your Employees: Internal Buyout, Co-op and Financing

Quick answer. Selling your business to your employees is a transfer route that secures continuity and retains the team. Three structures dominate: a direct purchase of the shares, a holding buyout (employees borrow through a company repaid by dividends) and conversion into a worker co-op. An onerous sale to employees gives entitlement to a 500,000-euro allowance on registration duties (Article 732 ter of the Tax Code), under conditions. Financing remains the main challenge.

An internal buyout offers advantages no outside buyer provides. Employees know the business, its customers and its know-how: continuity is assured, owner dependence disappears by itself, and the culture is preserved. For an owner attached to their team's future, it is a transfer that makes sense.

The flip side is known: employees rarely have the necessary funds. Success therefore rests entirely on legal structuring and financing, which are prepared upstream, like all the workstreams of a sale.

Direct purchase#

Employees acquire the shares in their own name, with personal equity and a bank loan, sometimes topped up by a vendor loan from the seller. Simple in principle, it quickly reaches its limits once the price exceeds individuals' borrowing capacity.

The holding buyout#

Employees create a holding company that takes on the loan and buys the target's shares. The holding repays its debt with the dividends paid up by the acquired company. The leverage is reinforced by the parent-subsidiary regime or tax consolidation, which limit double taxation of the dividends paid up. It is the reference structure for management buy-outs; it requires profitability sufficient to service the debt.

The worker co-op#

In a production cooperative, employees become majority members: they hold at least 51% of the capital and at least 65% of the voting rights, and no member may hold more than half the capital. The "start-up co-op" mechanism allows a gradual transition: employees have several years — up to seven — to reach majority ownership, while an outside investor stays temporarily. The co-op suits collective projects attached to shared governance.

This is the central advantage of a transfer to employees. On an onerous sale of goodwill, clientele or shares to one or more employees, a 500,000-euro allowance applies to the base of registration duties (Article 732 ter of the Tax Code). The amount was raised from 300,000 to 500,000 euros by the 2024 finance act, for buyouts made from 1 January 2024.

The conditions are precise: the buyer(s) must hold a permanent contract for at least two years and work full-time (or hold an apprenticeship contract); the shares or goodwill must have been held for more than two years by the seller where acquired for consideration; and the buyers must continue the activity as their professional activity, effectively and continuously, for the five years following the sale, with one of them ensuring effective management.

2026 watch point. The tax credit that once benefited the holding company set up for an employee buyout (Article 220 nonies of the Tax Code) no longer applies: it ended for buyouts made after 31 December 2022. So do not base a financing plan on this lapsed scheme; the live tax advantage is the duties allowance of Article 732 ter.

Financing almost always combines several of these sources. The vendor loan plays a key role: by accepting deferred payment, the seller reduces the initial financing need and sends a strong signal to banks. The company's profitability must allow the debt to be serviced while maintaining investment.

A successful transfer to employees follows a proven path, best started two to three years before departure.

1. Identify the core of buyers and gauge their capacity to contribute and commit.
2. Reduce owner dependence so the team is ready to run the business without the owner, a condition of credibility for the financing file.
3. Value the business on tangible grounds, bearing in mind that the price must remain bearable for the buyers.
4. Choose the structure: direct purchase, holding buyout or co-op, depending on the number of buyers and the leverage required.
5. Close the financing by combining equity, a bank loan and a vendor loan, and secure the Article 732 ter allowance.
6. Organise post-sale governance: allocation of roles, shareholder agreement, temporary support from the seller.

Post-sale governance deserves particular attention. An internal buyout brings together former colleagues who have become partners: it must be clear who leads, how decisions are made and how disagreements are settled. A well-drafted shareholder agreement prevents tension and protects the collective project. Support from the seller during a transition period, often six to twelve months, secures the handover of customer relationships and know-how.

Business in difficulty. Employee buyout, especially as a co-op, is a proven solution to save a viable activity whose owner is leaving; support from cooperative networks is valuable.

Partly interested team. Not all employees wish to become members. A core of buyers can carry the deal through a holding, the others remaining employees.

Mixed family-and-employee transfer. The Article 732 ter allowance also applies to a sale to a member of the seller's family; a structure can combine heirs and key employees.

• Check eligibility for Article 732 ter: two years' permanent contract, five-year continuation, effective management by one of the buyers.
• Do not count on the Article 220 nonies tax credit, lapsed since the end of 2022.
• Size the holding's debt on realistic profitability: too tight a structure weakens the acquired business.
• Anticipate the seller's tax: the capital gain on shares remains taxed at 31.4% in 2026, the Article 732 ter allowance covering the duties owed by the buyer, not the seller's tax.

Recently, an owner wished to transfer to three key managers who lacked the immediate means. We structured a holding buyout, used the Article 732 ter allowance, combined a bank loan and a vendor loan, and sized the debt on a prudent dividend projection. The deal held because the structure respected the company's real capacity to service the debt, and because the transfer had been prepared two years ahead.

The internal buyout is demanding but deeply virtuous: it aligns the interests of the seller, the buyers and the company. Our role as chartered accountant is to ensure its financial and tax solidity, from the cash-flow projection to the choice of structure and the securing of the allowance.

Beyond the technicalities, an internal buyout is above all a human adventure. It requires employees to agree to become entrepreneurs, to commit their savings and to carry a new responsibility. Our role is also to enlighten them on this transformation: what it means to become a partner, how a director is paid, what risks and freedoms come with owning the business. A project well prepared financially but poorly understood on the human side fails as surely as an undercapitalised structure. That is why we take the time to explain, to model several scenarios and to support the buyers beyond the signing alone.

Hayot Expertise advice. If you are considering transferring to your employees, start the thinking two to three years ahead: the buyers' equity capacity, the profitability available to service debt, the choice between direct purchase, holding and co-op. We model the financing, secure the Article 732 ter allowance and coordinate bank, lawyer and buyers.