ROBS C-Corp Employee BuyIn
We have recently closed on a business using the ROBS program and now have an employee interested in Buying In. What information can be shared to help deter this activity? What happens – can they take over controlling ownership of the company/ board of directors? We are very concerned how this impacts us as we were told “this very rarely occurs” and I’m not finding any information/ details online.
You should reach out to your ROBS partner to go over all of this with you. If you don’t have one, we recommend using Guidant, but there are several companies that can help you through your situation.
For your employee to buy-in they must be eligible to invest in your new business 401k program. If stock ownership in the company is part of that plan, then yes they can invest in the business. While this could eat into the percent that the 401k owns of the business, it shouldn’t be voting shares of the business. A single employee won’t be taking over the day-to-day operations, or even owning a large percent of the business. Think of it more as a profit sharing opportunity.
You just need to make sure everything is structured correctly, so you should speak to your ROBS provider, and possibly an attorney familiar with employee 401k plans. The answer really could be different based on what type of retirement plan you setup for the business, and how you structured it. But you can put your mind at ease with your concerns, and re-focus them on making sure you stay compliant by handling the employee’s request correctly.