Understanding exit options: Structures and terms
Most owners only sell a business once. The terminology can be confusing, and the options aren't always clear. Here's what you actually need to know about different exit structures.
Complete sale
You sell 100% of the business and transition out over an agreed period. The new owner takes full responsibility for the business, while you ensure a smooth handover.
What it looks like:
Full ownership transfers at closing
Purchase price paid upfront, usually with holdbacks/earnouts for transition period
Clear transition timeline
Future upside goes to new owner
Best when: The business has proven it can run without your daily involvement, and you're ready for a clean break. You've built a strong management team that can carry the business forward, and you want to minimize your ongoing risk and involvement after sale.
Typical buyers: PE firms, strategic corporate acquirers, search funds, family offices.
Staged buyout
Ownership transfers over time through a predetermined structure, typically organized around time- or performance-based milestones.
What it looks like:
Initial partial sale with defined future buyout
Price typically set upfront for future stages
You maintain some control during transition
Requires clear governance between parties
Best when: Your business needs time for a careful transition, particularly if key relationships or knowledge need to be transferred methodically. This works well when you're interested in capturing some near-term growth and want to prove the model to a new owner, but still want a clear path to eventual exit.
Typical buyers: Family offices, private investors planning to operate, strategic acquirers, select PE firms.
Management Buyout
A small group of key managers purchases and takes control of the business.
What it looks like:
Ownership transfer to a core leadership group
Usually highly leveraged, and often includes seller financing
Management puts in personal equity
Focused on rewarding/retaining key leaders and maintaining organizational continuity
Best when: You have a small group of capable managers with the appetite and financial capacity for ownership. The business needs to have reliable cash flows to support debt payments, and you want to keep leadership continuity. This works especially well when your management team has already proven they can run the business effectively.
Typical buyers: Management teams, private equity-backed management, outside operators partnering with existing team.
Employee Ownership (ESOPs)
An ESOP trust holds shares for benefit of all qualifying employees, creating broad-based ownership.
What it looks like:
Partial or full ownership transfer to an ESOP trust
Often 100% debt-financed
Complex regulatory requirements that require ongoing administration and annual valuations
Significant tax advantages available, however the company must remain sufficiently capitalized
Best when: You want to reward your broader employee base, not just senior management. This works particularly well for companies with high payroll relative to profits, strong management teams, and owners who are willing to prioritize widespread employee ownership. The tax benefits can be significant, but you need scale to offset the administrative costs.
Typical buyers: ESOP trust, often financed by banks specializing in ESOP loans, senior lenders, mezzanine lenders.
Family Succession
Transferring ownership to next generation through a structured process.
What it looks like:
Can combine gifting and sale components
Needs clear governance structure
Usually part of broader estate planning
May involve equalizing among family members
Often takes years to implement properly
Best when: The next generation has demonstrated both capability and genuine interest in the business. Family dynamics need to be healthy enough to support a transition, and estate tax planning is often a key driver. This takes time to do right, so starting early and getting the right advisors on board is crucial.
Typical buyers: Next generation family members, family trusts, family holding companies, family-outside investor partnerships.
Minority Stake
Selling a portion of the business while maintaining control.
What it looks like:
You maintain control
Immediate partial liquidity
Usually includes future exit rights
Board seats for new investor
Often a clear path to full exit or buyback options
Best when: You're looking for growth capital or strategic help but want to maintain control. This can be a good option when you want to de-risk personally but aren't ready for a full exit. It works best when you're comfortable with shared decision-making and have clear plans for how to use the new capital or expertise.
Typical buyers: Growth equity firms, family offices, strategic corporate investors, specialized minority investors.
The bottom line
Each structure has distinct implications for control, timing, taxation, and risk. Understanding these differences early helps you prepare for the right type of exit.
Want to learn more? Let's discuss which structure might make sense for your specific situation
