He said that because of some complexities in setting them up, ESOPs don’t make sense for businesses with fewer than 25 employees.

The Initiative has started the Minnesota Employee Ownership Fund to educate business owners about ESOP and to provide secondary financing of ESOP sales to help encourage banks and business owners to participate.

Starting in Mankato area

“We’re actually rolling this program out first in the Mankato area. There are a lot of business owners who could benefit.”

Martin said the program is a first and they hope to expand to a national level at some point. There are 9,600 ESOPs in the nation, with 10.5 million employee-owners.

Martin said the owners of businesses gain substantial tax benefits from becoming an ESOP. Proceeds from the sale, if reinvested in U.S. stocks or bonds, are not taxable until they are later sold.

“And the sale happens over time, so the owner still has control of the company until they retire.”

ESOPs, he said, can work in virtually any type of business.

Martin said employee-owned businesses outperform their peers. “Employees know that the more the company makes, the more wealth they’re going to build. And they have more job satisfaction.

Success at Windings

Windings was started in 1965 and Ryberg bought it in 1983.

The company is a contract manufacturer for electric motor parts for the aerospace, automotive, medical and factory automation industries. Customers bring Windings a design for what they need and the company makes the components.

Ward said there was skepticism and suspicion when employees were first told about becoming owners. One big worry was that employees would have to put up and risk their own money, which isn’t true.

How ESOPs work

For Windings, here’s how the ESOP works: